Singapore GDP growth moderating but has ‘ample fiscal space’ against downside risks: IMF

SINGAPORE’S recovery momentum has been moderating amid the global economic slowdown, but the city-state has “ample fiscal space to deploy if downside risks materialise”, a team from the International Monetary Fund (IMF) has said.

IMF economist Lamin Leigh, who led the team in discussions in Singapore from May 8 to May 17, said: “The tighter fiscal stance in the FY2023 budget, combined with targeted support to the most vulnerable, will appropriately help moderate price pressures...

“Singapore is well-positioned to absorb rising fiscal pressures to address medium and long-term challenges, including those arising from the rapidly ageing population and from climate-change risks.”

Noting that Singapore’s recovery is one of the strongest among advanced economies, he noted that the momentum has been moderating and is expected to “significantly moderate” this year, driven by weak performance of the trade-oriented sectors and external headwinds.

He added that the labour market has been tight across sectors, even if bottlenecks have started easing with the return of foreign workers. This has however translated into “sticky service price inflation”.

Gross domestic product (GDP) is projected to grow by 1 per cent in 2023, reflecting the weakening external demand from the slowdown in growth of the country’s major trading partners as well as slowing domestic demand following the post-reopening recovery, he said.

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This is lower than the 1.5 per cent full-year growth projection that the IMF made in its World Economic Outlook 2023 report, released in April.

Still, Leigh said downside risks are mostly external – “notably an abrupt global slowdown, premature loosening of monetary policies by major central banks, and deepening geo-economic fragmentation”.

Headline inflation, while still elevated, has been moderating, he said, and it will slightly moderate to 5.5 per cent this year.

Leigh added that the tight monetary policy stance of the Monetary Authority of Singapore (MAS) is welcome.

“Monetary policy decisions should remain data-dependent and maintain the tightening bias, with a continued focus on reining in inflation while facilitating a soft landing,” he said.

“The tight monetary policy stance may need to remain for longer or be further tightened, should inflation surprises re-emerge, to help prevent inflationary pressures from becoming entrenched.”

He noted that the financial sector remains sound, preserving Singapore’s role as an important regional financial hub.

“Liquidity risks in banks and non-bank financial institutions as well as interest rate risk for highly leveraged entities, should continue to be closely monitored, particularly given heightened global economic and financial uncertainties,” he said.

“Along with MAS’ tighter macro-prudential stance to reign in buoyant residential property markets, financial sector resilience should be preserved.”

Leigh said that the IMF team welcomed the authorities’ ongoing plans to accelerate digital adoption and innovation, particularly in the financial sector, climate-resilient infrastructure investment and climate mitigation goals.

Resource reallocation towards high-growth sectors and more sustainable activities is also a welcome move, he added, as it will support medium-term economic growth.

Leigh’s statement came at the end of the team’s mission to Singapore. IMF usually holds yearly bilateral discussions with its members through a staff team that visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.