According to the Ministry of Trade and Industry (MTI) of Singapore, the City State will maintain 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 City State’s MTI has added 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,” MTI was quoted as saying 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 further elaborated.
“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.”
“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,” Mr Gabriel Lim, Permanent Secretary for Trade and Industry said.
“On balance, MTI’s assessment is that the external demand outlook for the Singapore economy has weakened compared to three months ago.”
There are some sectors in the Singapore economy that have seen a strengthening of their growth outlook, as a result of Covid-19 situation in Singapore has stabilised following the cresting of the Omicron wave. The city-state’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.
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 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.
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.
“The cumulative effect of the three tightening moves since last October will slow the inflation momentum,” Mr Edward Robinson, MAS’ deputy managing director and chief economist.
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.
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.
“Supply frictions may continue to pose the risk of inflation gaining pace going forward and the central bank will remain vigilant,” he warned.
“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.
