Analysts cut their Singapore 2022 growth forecast amid inflation concerns: MAS survey

A sharper-than-expected rise in inflation is driven mainly by higher energy and food prices. ST PHOTO: FELINE LIM

SINGAPORE - Private-sector analysts have shaved their growth forecast for 2022, with the sharper-than-expected rise in inflation and slower economic activity in China among the downside risks for Singapore's economy.

Economic growth is predicted to come in at 3.8 per cent for the full year, according to a quarterly survey of professional forecasters released by the Monetary Authority of Singapore (MAS) on Wednesday (June 8).

This is lower than the 4 per cent growth tipped in the previous survey released in March. The gross domestic product (GDP) growth forecast for 2023 remains unchanged at 3 per cent.

Growth for the second quarter of this year is forecast at 4.8 per cent, following the 3.7 per cent expansion in the first quarter - which was tipped by the private-sector economists.

Late last month, the Ministry of Trade and Industry warned that growth would likely come in at the lower half of its 3 per cent to 5 per cent forecast range as the war in Ukraine disrupts the global supply of energy, food and other commodities, in turn worsening global inflationary pressures.

In the latest MAS survey, the analysts raised their inflation forecasts for this year.

Overall inflation for the whole of 2022 is now expected to hit 5 per cent, up from 3.6 per cent in the previous survey.

The forecast for core inflation, which excludes private transport and accommodation costs, was raised to 3.4 per cent, from 2.7 per cent previously.

Their predictions are within MAS' raised official forecast of 2.5 per cent to 3.5 per cent for core inflation, and 4.5 per cent to 5.5 per cent for overall inflation.

The private-sector economists in the MAS survey expect both overall and core inflation to ease next year. Overall inflation is forecast at 3 per cent in 2023, while core inflation is expected to come down to 2.8 per cent.

A sharper-than-expected rise in inflation, driven mainly by higher energy and food prices, was cited by 88.2 per cent of responses as a downside risk to Singapore's growth outlook, compared with 77.8 per cent in the previous survey.

Maybank senior economist Chua Hak Bin said that the bank is more pessimistic on growth than the consensus, forecasting a 2.8 per cent expansion, below the official forecast range. 

“Global headwinds will likely overwhelm and douse the reopening tailwinds, dampening the growth momentum,” he added. 

Dr Chua added that inflation pressures remain intense, and noted that there is some risk of a wage-price spiral as workers demand higher salaries to compensate for higher prices.

Other risks highlighted included slower economic activity in China, as well as weaker-than-expected global growth driven in part by major economies like the United States and euro zone.

Moody’s Analytics economist Denise Cheok noted that Singapore’s key electronics sector is dependent on demand from China, and China’s zero-Covid stance is weighing down not only on domestic factory production, but also on regional supply chains. 

Remote video URL

“In particular, Singapore’s exports to China and Hong Kong declined in April, reflecting the impact of the severe lockdown in Shanghai and mobility restrictions in many other parts of the country. The uncertainty that future lockdowns bring also weigh down business and consumer sentiment,” she added.

Nonetheless, there was some optimism from analysts over more robust growth in China, reopening of borders and a stronger-than-expected expansion in manufacturing output for Singapore's GDP expansion.

In particular, analysts were more upbeat on the potential boost from growth in China, with 60 per cent of respondents citing it as an upside risk, compared with 29.4 per cent in the March survey.

Meanwhile, respondents are expecting the unemployment rate to stand at 2.1 per cent at the year end, a slight improvement from the 2.2 per cent tipped in the March survey.

Remote video URL

The majority of analysts - 70 per cent - are also expecting private residential property prices to increase, compared with the view in March that prices would remain stable.

Among the factors weighing on financial market and lending conditions in Singapore is rising interest rates. As an indication of how much rates are expected to rise, the economists forecast that the three-month Sibor (Singapore Interbank Offered Rate) could come in at around 2.3 per cent at the year end, up from the previous 1.09 per cent forecast.

The survey, which was sent out on May 25, reflects the views of 24 professional forecasters and not the central bank's.

Join ST's Telegram channel and get the latest breaking news delivered to you.