On Wednesday, the Ministry of Trade and Industry (MTI) estimated that after expanding at a rate of around 7 per cent this year, Singapore's gross domestic product growth is expected to slow to 3 per cent to 5 per cent next year. The projected slowdown should not come as a surprise, given that base-year effects will no longer be in play - both in Singapore and globally - and fiscal support will be winding down. But the forecast for next year is also subject to various downside risks. Among them, the MTI has flagged the still-uncertain trajectory of the Covid-19 pandemic within the region and beyond; a slowdown of growth in China, mainly because of its property market downturn; and more persistent inflation arising from protracted supply chain disruptions and rising energy prices.

Inflation-related risks, coupled with a rising United States dollar, are of particular concern, given that their impact will be broad-based and affect several economies all at once. The latest data from the US indicates that the Federal Reserve's most closely tracked inflation gauge - the core personal consumption expenditure index, which strips out volatile food and energy prices - rose 4.1 per cent last month compared with a year ago. This is a big jump from the 3.7 per cent rise in September, and double the Fed's target of 2 per cent average inflation. Although the Fed has started tapering its purchases of securities - which releases less liquidity into markets - as a preliminary measure to tighten its monetary stance, pressures are building for it to speed up the tapering process and possibly even bring forward the timetable for hiking interest rates, which would otherwise begin around mid-next year.