Neither recession nor stagflation expected for Singapore in 2023: Alvin Tan

SINGAPORE is not expected to see a recession nor “stagflation” in 2023, Minister of State for Trade and Industry Alvin Tan told Parliament on Monday (Jul 4).

Noting that economic activity has been resilient so far, he added: “For the rest of the year, the recovery in international travel and domestic demand with the lifting of Covid-19 restrictions will help to mitigate some of the weaker external demand.”

That’s even as he highlighted “a significant rise in inflation” here in 2022, amid supply disruptions from the Russian war in Ukraine and the Covid-19 situation in economies like China.

Tan was replying to a slate of questions on the outlook for Singapore’s economic performance, in the face of challenges such as global and domestic inflation, and a rise in interest rates worldwide.

People’s Action Party (PAP) MP Desmond Choo (Tampines GRC) had asked about the impact of inflation on consumer demand and business sentiment here, while Cheng Li Hui (Tampines GRC) and Shawn Huang (Jurong GRC) asked whether Singapore could experience a recession or stagflation – that is, economic stagnation and high inflation – in the next few years.

Pointing to the recent expansion in non-oil domestic exports, industrial production, and retail and food and beverage sales, Tan reiterated that growth is likely to come in at the lower half of the official forecast range of 3.0 per cent to 5.0 per cent in 2022, and “to moderate further next year”.

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He told the House that inflation “is likely to pick up further in the coming months but should start to moderate towards the end of the year if external inflationary pressures recede”, and added that “at this stage, we do not see or do not expect a recession or stagflation in 2023”.

But Tan also warned that “risks in the global economy remain significant”, with a global economic slowdown and “strong external inflationary pressures” posing major headwinds.

Besides potential escalations in the Russia-Ukraine war and Covid-19 pandemic, other threats to the economy include a shake-up of financial market stability “if monetary policy tightening in advanced economies is faster than expected”, he said.

Tan noted that central banks worldwide have already raised interest rates to tackle climbing inflation – a trend that has pushed up Singapore’s domestic inter-bank interest rates as well.

He said the scope of the domestic increase has been moderated by a stronger Singapore dollar, but added: “As global interest rates could increase further, businesses and households should bear in mind the rising cost of borrowing when making borrowing decisions.”

To a follow-up question from Choo on whether inflation has caused demand destruction, Tan said: “Thus far, the higher inflation readings in recent months have not led to any significant cutback, at least in household consumption.”

PAP MP Liang Eng Hwa (Bukit Panjang) separately asked if the economy was in “overdrive mode”, and whether its expansion was sustainable and healthy.

In response, Tan said the economy was “operating slightly above potential”, while labour market conditions were expected to stay tight “but a significant overheating ... is unlikely”.

He added that “we should grow if we can grow”, as strong growth would support job creation, wages, economic vibrancy and foreign investment, and help to address inflationary pressures.