SINGAPORE - The Ukraine crisis has clouded Singapore's economic outlook, with escalating energy costs set to fuel a knock-on increase in prices of other products, said Trade and Industry Minister Gan Kim Yong on Monday (Feb 28).
While the actual impact on Singapore's gross domestic product (GDP) growth and inflation is difficult to estimate for now given the uncertainties, it is clear that inflationary pressures are likely to rise further in the near term, especially through an increase in the prices of oil-related items.
"The downside risks to our economy have also increased significantly," said Mr Gan, speaking on the economic impact of the Ukraine war during the Budget debate in Parliament.
Singapore had earlier projected that its GDP would grow by 3 per cent to 5 per cent in 2022, with core inflation to come in between 2 per cent and 3 per cent.
In his speech, the minister noted that Singapore's initial assessment is that the immediate and direct impact of the Ukraine crisis on the Republic's economy and firms has been manageable for now - Singapore firms have a limited presence in Ukraine and the country does not import many essential supplies from Ukraine and the region.
But the conflict is still evolving and the situation could change very quickly, he cautioned.
"Make no mistake, that while Ukraine may seem far away from Singapore, the conflict there will have real and significant impact on all of us," Mr Gan said.
He added that with sanctions being imposed on Russia and disruption to supplies, global prices of energy and other products are set to rise in the coming weeks.
One key area where Singapore will be significantly affected is in energy costs, as Singapore imports most of its energy needs, he said, noting the recent price increases of liquefied natural gas and Brent crude oil.
Higher energy costs mean that motorists must expect pump prices for petrol and diesel here to rise, and electricity rates for both businesses and households will also increase in tandem with escalating global energy costs, he added.
"These will undoubtedly impact Singaporeans, and further raise the cost of living here," said Mr Gan.
Global supply chains will also be further strained by the crisis, as Russia and Ukraine are major exporters of commodities such as wheat, and metals like nickel and palladium.
He cited how disruptions in the supply of nickel could affect the production of stainless steel, which is used in the manufacturing and construction sectors. Disruptions to palladium supply would affect the semiconductor industry and consequently the wider technology goods market.
"We are working with our key companies to review their business continuity plans, to minimise disruptions to their business operations," Mr Gan said.
"We must also be prepared for the follow-on impact on trade and investment flows. A protracted conflict will affect business confidence and weigh on global economies, and impact their recovery from the pandemic," he added.
Earlier in Parliament, Foreign Minister Vivian Balakrishnan had said that Singapore will impose appropriate sanctions and restrictions against Russia, in concert with like-minded countries.
Mr Gan said that the conflict in Ukraine is a stark reminder that as a small country and open economy, Singapore is vulnerable to the vagaries of international developments - military conflict, global inflation and supply disruptions, or other trends such as technology and climate change.
"It is crucial that we strengthen our defences against such external shocks. To do that, we need to build a vibrant, diversified and resilient economy, as well as forge a cohesive and united society," he said.
Mr Gan, acknowledging questions on whether the Government could shield Singapore from the impact of these external factors, said that given the Republic's open economy, it would not be possible to totally insulate Singapore from the impact of higher global costs.
"The Government understands the strain that businesses and households are under, and will do our best to help them," he said.
To this end, it has put in place a multi-pronged strategy to address inflation concerns, including measures to manage various cost drivers such as electricity prices, rental costs, and to support businesses in coping with higher costs.
Households, affected by the rise in inflation, especially from higher utilities and grocery bills, will also receive support to manage higher costs of living, Mr Gan said.
For example, the Household Support Package introduced in Budget 2022 will help Housing Board households defray the cost of higher electricity bills.
All Singaporean households will also receive additional Community Development Council vouchers to help them with their daily expenses, and all below the age of 21 will receive a top-up of $200 to their Child Development Account, Edusave Account, or Post-Secondary Education Account to help them with their education needs.
This is in addition to the wide range of support measures for seniors and low-income families that the Government has enhanced, Mr Gan noted, adding that households that require extra help can also continue to apply for financial assistance.
"The Government will monitor this inflation situation carefully, and will not hesitate to provide more help should there be a need to," he said.