Affected by factors such as the GDP for the second quarter being lower than the government's expectations and weak global demand, the Singapore Ministry of Trade and Industry (MTI) on Friday revised the country's GDP growth rate from the previous 0.5%-2.5% down to 0.5%-1.5%.
Recent data shows that the seasonally adjusted GDP grew by 0.1% quarter-on-quarter in the second quarter. Although this is an improvement from a contraction of 0.4% in the first quarter, it is still below the government's estimate of 0.3%.
MTI stated that due to the continued slump in the electronics sector and the ongoing weakness in manufacturing, Singapore's industrial output and exports have declined for nine consecutive months, increasing the risk of prolonged economic stagnation. However, officials at MTI believe that despite two consecutive quarters of economic contraction, the country is not expected to fall into a technical recession this year.
MTI's Chief Economist, Yong Yik Wei, said that although the slowdown in manufacturing has lasted slightly longer than the government initially thought, the economy is expected to experience a mild recovery in the second half of the year, supported by the resilience of the inbound tourism and consumer-facing sectors.
Despite data from June showing a moderation in inflationary pressures in Singapore, inflation remained high throughout the first half of the year. An official from the Monetary Authority of Singapore (MAS) stated that economic growth and inflation trends are within the government's expectations, and MAS's current policy stance is "appropriate."
Since October 2021, the Monetary Authority of Singapore has tightened monetary policy five times in a row. Starting in April this year, the policy has been kept unchanged, reflecting the authority's concerns about the outlook for Singapore's economic growth.
Barclays economist Brian Tan stated that despite the high levels of prices in Singapore, the central bank is unwilling to relax its tightening policy, nor can it afford to do so, as easing policies could drag the country into the risk of stagflation, characterized by low growth and high inflation.
Moreover, considering the upcoming implementation of the next round of goods and services tax hike next year in Singapore, inflationary pressures are likely to rise further. Both financial institutions and market participants believe that the Monetary Authority of Singapore must continue its current tightening policy unchanged, and further interest rate hikes in the future cannot be ruled out.
