IMF lowers forecast for Singapore economy to 3.7% growth this year

Over the next three to five years, GDP growth should converge to 2.5 per cent and inflation stabilise at 1.5 per cent. PHOTO: ST FILE

SINGAPORE - The International Monetary Fund (IMF) has cut its economic growth forecast for Singapore, in line with its recent warning that it will downgrade its estimates for the global economy later this month.

The IMF said Singapore’s economy will grow at 3.7 per cent this year, in a country report issued on Friday (July 22) after consultations with officials here. 

The latest estimate is less than the forecast of 4 per cent growth the fund had made in May.

The IMF said the pace of growth will be slower this year compared with the 7.6 per cent surge in 2021 as trade-related sectors may moderate amid supply constraints, while recovery in the hardest hit sectors - tourism and aviation-related, consumer-facing and construction - has only just begun.

The IMF, however, kept its forecast 4.8 per cent for Singapore’s headline inflation - which covers all goods and services.

The Government’s own outlook is for growth to come in at the lower half of its 3 per cent to 5 per cent forecast range. The Monetary Authority of Singapore (MAS), meanwhile, just raised its headline inflation forecast for 2022 to 5 per cent to 6 per cent.

The IMF said growth in Singapore is being driven by pent-up demand as the economy reopens, amid the relaxation of most Covid-19 curbs on mobility.

"Singapore's skilful containment measures, effective vaccination campaign and decisive policy support helped the economy to recover impressively," the report said.

However, the fund warned: "The outlook is subject to significant uncertainty and risks are titled to the downside."

Inflation has been driven up by rising domestic cost pressures, as well as external factors such as the war in Ukraine, which has pushed up commodity prices and tightened supply conditions.

The IMF said the risks stem mostly from the Ukraine conflict and the related sanctions imposed on Russia, China's growth slowdown, and interest rate hikes in advanced economies to tame inflation.

It also said that the threat of vaccine-resistant new Covid-19 variants continues to linger.

With the recovery in domestic demand, the IMF said Singapore's current account surplus is expected to decline to 13.2 per cent of gross domestic product in 2022 from 18.1 per cent in 2021.

Current account is the broadest measure of the health of a country's external sector and its ability to meet its foreign payment obligations.

Over the next three to five years, GDP growth should converge to 2.5 per cent and inflation stabilise at 1.5 per cent.

The IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies before issuing its country report.

The IMF's executive board commended Singapore's handling of its fiscal and monetary policies to support the recovery, while recommending that in view of the strong but uneven recovery, near-term policies should focus on calibrating the pace at which fiscal and monetary support is removed.

That would facilitate a broadening of the recovery, while managing price pressures and downside risks, the IMF said.

The Government has adopted a tighter fiscal stance in 2022, combined with targeted and temporary assistance for vulnerable households, workers and firms.

Meanwhile, the MAS has been tightening its monetary policy, putting the Singapore dollar on the path of appreciation, since October to absorb imported inflation.

The IMF said these fiscal and monetary measures will limit inflationary pressures while facilitating a broadening of the recovery.

Like many economists and policymakers worldwide, global institutions like the IMF have raised the alarm on the prospects of global growth that powers Singapore's export- driven economy.

The fund's managing director, Ms Kristalina Georgieva, said in a blog post on July 13 that the IMF's World Economic Outlook update due on July 26 will cut the forecasts for global economic growth as fallout from Russia's invasion of Ukraine and pandemic-related shutdowns in China reverberate.

"It is going to be a tough 2022, and possibly an even tougher 2023, with increased risk of recession," she wrote in the blog post.

MAS managing director Ravi Menon said on Tuesday that a good scenario for Singapore is a mild and short-lived global technical recession: Two consecutive quarters of negative growth that tame inflation.

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