Five challenges for Singapore's continued economic recovery

AS the year draws to a close, Singapore's recovery is still on track, with economic growth expected to stay above trend in 2022 as well. However, headwinds and downside risks remain, and the sectoral picture remains uneven. Here are five challenges to watch out for as we approach the new year.

1. Inflationary pressures

The Monetary Authority of Singapore's (MAS) surprise move to tighten policy in October attests to the perceived seriousness of these upward price pressures. Imported inflation is likely to endure into 2022 as global disruptions to food production and supply chains persist, said the MAS in its latest Macroeconomic Review.

At home, rising wage costs are already being passed on to consumers. This may intensify next year as Progressive Wage Model obligations take effect for lower-wage workers.

2. Labour market divergence

Resident employment is up, while unemployment rates and retrenchments have been easing from their peaks in late 2020. Yet beneath the healthy topline figures is a "K-shaped" recovery.

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While resident headcount is rising in outward-oriented sectors, domestic sectors hit by Covid-19 curbs - such as food and beverage (F&B) services, retail trade, and accommodation - are continuing to trim their workforce.

With displaced workers from the latter sectors not necessarily being suited for openings in the former, labour market mismatch may have intensified in recent quarters, said the MAS.

Going into 2022, the task is to ensure that such mismatches do not harden into structural unemployment.

3. Covid-19 flare-ups at home...

Throughout 2021, domestic services - particularly F&B - have bemoaned the on-again off-again nature of Covid-19 restrictions. Prolonged uncertainty has also restrained consumer and business sentiments.

The government has stressed that its long-term strategy of living with endemic Covid-19 remains intact, and that lockdowns are a last resort - but that does not mean that they are completely off the table.

While the booster shot programme and the prospect of vaccination for younger children both bode well, the possibility of more disruptive variants can never be ruled out.

4. ...and abroad

Many countries in Europe are already seeing the beginnings of a fresh winter wave of infections. Worsening conditions abroad could directly threaten Singapore's border reopening efforts and jeopardise established or planned Vaccinated Travel Lanes, as well as cause supply chain disruptions.

Indirectly, if renewed infections and lockdowns in other countries impede the growth of major trading partners, Singapore will feel the effects of such dampened demand as well.

5. Geopolitical risks

The global pandemic may have overshadowed bilateral tensions, but these tensions have not dissolved, the MAS noted. The ongoing trade war between the United States and China, for instance, had already taken a toll on the international economy in the years before Covid-19.

Though not citing that precise example, Singapore's central bank said that the underlying issues of pre-Covid geopolitical tensions "remain substantially unresolved", and could weaken business confidence if such hostility flares up even as the pandemic recedes.

READ MORE:

• MAS expects slower but 'above-trend' growth in 2022
• Jobs may stay below pre-Covid level even as labour market recovers: MAS