Economists’ forecasts down for Singapore’s 2022 growth, up for inflation; 4.8% growth seen in Q2

PRIVATE-SECTOR economists have raised their full-year forecasts for Singapore’s inflation and lowered them for growth.

However, they expect 4.8 per cent growth in the second quarter, up from 3.7 per cent in Q1, going by the latest survey of professional forecasters published by the Monetary Authority of Singapore on Wednesday (Jun 8).

Though somewhat gloomier, the changed full-year expectations are still within official forecast ranges for both inflation and growth.

Respondents now believe that headline inflation could hit 5 per cent for the full year, up from their prediction of 3.6 per cent in the previous quarterly survey in March. This is in line with the Monetary Authority of Singapore (MAS) raising its official forecast range in April to between 4.5 and 5.5 per cent, up from the earlier range of 2.5 to 3.5 per cent.

The surveyed economists also expect core inflation, which excludes accommodation and private road transport costs, to hit 3.4 per cent, up from 2.7 per cent in the previous poll. The MAS forecast range is between 2.5 and 3.5 per cent, up from the 2.0 to 3.0 per cent range expected in January.

For Q2, respondents expect headline inflation to come in at 5.4 per cent, and core inflation, at 3.5 per cent.

As for full-year gross domestic product (GDP) growth, respondents now forecast it to be 3.8 per cent, down from 4 per cent in the previous survey. The official forecast is for expansion of 3 per cent to 5 per cent, with growth likely to be on the lower end of that range.

Expectations rose for the manufacturing sector’s full-year growth to 4.6 per cent, up from 4.1 per cent in the March survey, but fell for other sectors. In particular, construction-sector growth is now forecast at 5.9 per cent, down from 9 per cent in the previous survey.

In 2023, GDP growth is tipped to cool to 3 per cent, while both headline and core inflation are projected to ease to 3 per cent and 2.8 per cent respectively.

This is even as a sharper-than-expected rise in inflation, driven primarily by higher energy and food prices, was once again the most-cited downside risk to the Singapore economy, named by 88.2 per cent of respondents, from 77.8 per cent in the previous poll. It was named as the top risk by 41.2 per cent of respondents.

Uncertainty over the trajectory of China’s growth was pronounced. Slower growth in China was cited as a downside risk by 47.1 per cent, more than doubling from 22.2 per cent in the previous survey.

Yet the proportion of respondents citing China as an upside risk – due to macroeconomic policy easing and the reopening of its economy – also doubled to 60 per cent, from 29.4 per cent in the previous poll.

Either way, the manufacturing sector will be the most affected by the developments in China, given the latter’s position in the global supply chain, said Suan Teck Kin, UOB’s head of research. Other sectors, such as construction and tourism-related sectors, which require components from China for domestic use, will also be affected.

“However, the impact may be different across the supply chain. For example, products such as precision instruments and medical equipment, which are produced in Singapore, may require parts and components from China. In some cases, parts and components produced in Singapore are sent to China for assembly,” he added.

As for how China’s slowdown would affect Singapore’s growth, Suan said exports would have the largest impact, followed by imports, with both accounting for about 90 per cent of the impact, according to a simulation run by UOB.

“Investment flows and tourism will also affect Singapore’s growth, but to a much lesser extent, at 10 per cent. This is due to our highly open economy and the importance of international trade for Singapore, given our hub status,” he said.

Weaker-than-expected global growth, driven in part by major economies like the United States and the euro zone, was another downside risk, cited by 35.3 per cent, up from 22.2 per cent in March.

On the other hand, 53.3 per cent of respondents flagged accelerated revival in travel and tourism as a potential upside, though this was down from 64.7 per cent in the previous poll.

The stronger-than-expected expansion in manufacturing output was also identified as a possible upside by 33.3 per cent of respondents, but this was lower than the 47.1 per cent in the previous survey.

The June survey reflects the views of 24 professional forecasters, and not the MAS’ own. It was sent out on May 25.