Budget 2023: Major uncertainties in year ahead; government to plan for potential downside scenarios

FINANCE Minister Lawrence Wong on Tuesday (Feb 14) painted a mixed picture of Singapore’s growth prospects in 2023, as he warned of the uncertainty caused by economic declines in major economies and a potentially longer period of high inflation.

Singapore’s economic fundamentals remain strong, said Wong in his Budget speech on Tuesday (Feb 14). The economy is expected to see “positive but slower” growth this year of between 0.5 per cent and 2.5 per cent.

But there are major uncertainties and downside risks to the forecast, said Wong.

He noted that the International Monetary Fund and other economists do not expect a global recession this year. However, if the US and European Union economies decline more than expected, it could tip the world into recession, said Wong.

An escalation of the Ukraine war or a prolonged conflict and stalemate would have a greater impact on global trade as well as consumer and business confidence, said Wong.

As for Covid-19, Wong said that it was not possible to rule out a new variant that might be more dangerous and virulent.

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“Whether or when these events will happen cannot be predicted with certainty. But we must prepare ourselves for these risks and be ready to respond to them,” said Wong.

“We will therefore develop drawer plans, so that we have the ability and resources to take swift action should these downside scenarios materialise.”

While there are early signs that global headline inflation rates are softening, it is “premature to declare victory”, said Wong.

Demand for commodities, especially oil and gas, are likely to rise following China’s reopening. This comes even as Europe is still trying to secure energy supplies. Wong added that signs of more persistent underlying inflation pressures remain, especially with tight labour markets globally.

“We therefore have to brace ourselves for a period of relatively higher inflation, both globally and also in Singapore,” he said. He added that the country’s headline inflation is expected to remain high, at least for the first half of 2023.

Earlier in his speech, Wong noted that industries in Singapore that were hit the hardest by Covid-19, such as F&B, construction and travel, are seeing continued recovery.

The economy grew 3.6 per cent in 2022 despite the challenges, while the December resident unemployment rate of 2.8 per cent is below pre-pandemic levels.

“It has been a long, hard slog, full of unexpected twists and turns... through our collective efforts, we have found our way through this pandemic,” said Wong.