Ukraine war clouds economic outlook of Singapore: Gan

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 yesterday.

While the actual impact on Singapore's gross domestic product (GDP) growth and inflation is hard to estimate for now given the uncertainties, it is clear inflationary pressures are likely to rise further in the near term.

"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 this year, with core inflation to come in between 2 per cent and 3 per cent.

In his speech, Mr Gan noted Singapore's initial assessment is that the immediate and direct impact of the Ukraine crisis on its 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, 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.

This will be a key area of impact as Singapore imports most of its energy needs, he said, noting recent price increases of liquefied natural gas and Brent crude oil.

Higher energy costs mean motorists must expect pump prices to rise and electricity rates 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," he said.

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.

He cited how disruptions in the supply of nickel could affect the production of stainless steel, which is used in manufacturing and construction. Disruptions to palladium supply would affect the semiconductor industry and 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."

Mr Gan said 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 said that given the Republic's open economy, it would not be possible to totally insulate Singapore from the impact of higher global costs.

A multi-pronged strategy has been implemented to address inflation concerns, including measures to manage various cost drivers such as electricity prices and rental costs, and to support businesses, he added.

"The Government will monitor this inflation situation carefully, and will not hesitate to provide more help should there be a need to," he said.