Although corporates, households and financial institutions have remained resilient despite slower economic growth and higher interest rates, the latest Financial Stability Review recently released by the Monetary Authority of Singapore (MAS) warns of multiple risks that bear watching in the coming year. This is significant because, so far, most corporates and households in Singapore have weathered the impact of higher interest rates well. Both have reduced their leverage by paying down debt and households have benefited from continued wage growth, which has cushioned the impact of higher mortgage rates. As a result, the ratios of non-performing loans have remained low, both for corporates and the housing sector.

However, there are several risks ahead that could lead to stress in some areas of the economy. The most prominent are those that relate to a widely predicted global economic slowdown and even a possible recession, coupled with higher-for-longer interest rates. The post-pandemic economic surge that fuelled robust growth since 2022 is winding down, and the full impact of high interest rates – which are expected to remain elevated well into 2024 – has not yet been felt. MAS flags the risk of a segment of highly leveraged firms that have been dependent on low and stable interest rates that could come under stress.