Singapore's GDP growth for 2022 likely to come in at lower half of 3-5% forecast: MTI

SINGAPORE - Singapore maintained its 3 per cent to 5 per cent economic growth forecast for 2022, but warned that growth will likely come in at the lower half of the forecast range because of the impact of the war in Ukraine and China's strict Covid-19 lockdowns.

The Ministry of Trade and Industry (MTI) said on Wednesday (May 25) that the external economic environment has deteriorated since February, due in part to the onset of the Russia-Ukraine conflict.

"The conflict has disrupted the global supply of energy, food and other commodities, which has in turn exacerbated global inflationary pressures and adversely affected the growth of many economies," it said in a statement released with the first-quarter 2022 Economic Survey of Singapore.

Meanwhile, stringent measures implemented in China to contain its domestic Covid-19 outbreaks are likely to weigh on its economy and contribute to global supply bottlenecks, MTI said.

The ministry said that as a result of the war and the lockdowns, global supply disruptions are likely to be more severe and prolonged than earlier expected, potentially persisting throughout 2022.

This, in turn, is likely to constrain production and dampen gross domestic product (GDP) growth in some economies, including the United States, China and Europe, by more than previously projected.

Mr Gabriel Lim, Permanent Secretary for Trade and Industry, said downside risks in the global economy remain significant.

"Key risks include a further escalation in the Russia-Ukraine conflict; more severe-than-expected global supply disruptions due to renewed Covid-19 outbreaks; and risks to financial market stability if monetary policy tightening in advanced economies is faster than expected," he said.

"On balance, MTI's assessment is that the external demand outlook for the Singapore economy has weakened compared to three months ago."

However, MTI noted that the Covid-19 situation in Singapore has stabilised following the cresting of the Omicron wave. This, along with the country's high vaccination rate and strong booster take-up, has allowed for a faster-than-expected lifting of domestic and border restrictions since the end of March.

As a result, there are some sectors in the Singapore economy that have seen a strengthening of their growth outlook.

These include the electronics cluster, which is expected to expand more strongly than earlier projected, bolstered by robust global demand for semiconductors from the 5G and automotive markets, as well as cloud services and data centres.

The roll-out of the Vaccinated Travel Framework, alongside the easing of border restrictions in regional economies, is likely to boost the growth of professional services such as consultancy and legal.

Air travel and visitor arrivals are also expected to pick up more quickly than earlier projected, thereby accelerating the recovery of aviation- and tourism-related sectors such as air transport and arts, entertainment and recreation.

Finally, the relaxation of Covid-19 curbs will also support a faster pace of recovery in consumer-facing sectors such as retail trade and food and beverage services, as well as further alleviate labour shortages in sectors that are reliant on migrant workers such as construction.

The strength of the electronics cluster and overall manufacturing helped to upgrade Singapore's first-quarter GDP growth.

The survey showed that in the first quarter of 2022, the economy grew 3.7 per cent on a year-on-year basis, moderating from the 6.1 per cent expansion in the previous quarter, but higher than the 3.4 per cent previously estimated.

On a quarter-on-quarter seasonally adjusted basis, the economy expanded by 0.7 per cent, slower than the 2.3 per cent growth recorded in the previous quarter.

At a media briefing on Wednesday, the Monetary Authority of Singapore (MAS) said that its policy stance, favouring appreciation of the local dollar’s trade-weighted value, remains appropriate to fight inflation.

Mr Edward Robinson, MAS’ deputy managing director and chief economist, said the cumulative effect of the three tightening moves since last October will slow the inflation momentum.

The Singapore dollar has gained against most of its peers this year and is at an all-time high against the Malaysian ringgit. A stronger currency makes imports cheaper and hence lowers the impact of imported inflation.

Mr Robinson noted that core inflation in the first four months of 2022 has averaged 2.7 per cent, which is within MAS’ expectation of a 2.5 per cent to 3.5 per cent gain for this year.

However, he warned that supply frictions may continue to pose the risk of inflation gaining pace going forward and the central bank will remain vigilant.

“Monetary policy cannot deal directly with pure supply shocks,” he said. But the tighter policy is intended to moderate the pace and persistence of overall price increases, he added.

MAS also warned businesses and households to brace themselves for more global market volatility and higher interest rates worldwide, which may constrict the availability of funds to manage their debts and mortgages.

MTI and the Ministry of Manpower also believe that the supply of labour will remain tight and wages may rise further, contributing to inflationary pressures.

Ms Selena Ling, chief economist and head of treasury research and strategy at OCBC Bank, said: “The road ahead remains bumpy.”

She said MTI’s guidance on full-year growth coming at around 3 per cent to 4 per cent was consistent with her forecast of 3.5 per cent to 4 per cent. But core inflation this year may breach MAS' forecast and rise to around 4 per cent.

“Monetary policy stance is likely to remain hawkish to combat elevated core inflation, but more targeted fiscal assistance may be forthcoming to (help) businesses cope with the rising cost structure and tight labour market conditions as well as help Singaporeans cope with rising cost of living issues,” Ms Ling noted.