Macroeconomic and Financial Stability

Price Stability

Overall, global growth is expected to remain steady in 2024, even as the impact of past monetary policy tightening and less supportive fiscal policy continues to exert some restraining effect. The global economy continued to display remarkable resilience in Q1 2024. The benign growth backdrop will add momentum to the nascent upturn in the global electronics cycle, supporting Emerging Market Asia economies.
The pace of disinflation in Singapore’s major trading partners, especially in advanced economies (AEs), has slowed. The road ahead is likely to be bumpy as the deflationary impulse from lower commodity and goods prices fade and services inflation remains elevated. In AEs, slower wage and/or strong productivity growth will be necessary to return inflation sustainably to target.
The balance of risks appears to be tilted towards persistent inflation. Further, geopolitical risks or extreme weather events could result in supply-drive cost hikes. However, a delayed and slower pace of AE monetary easing could trigger latent financial vulnerabilities and consequently weigh on growth.

Overall, the Singapore economy is expected to attain growth of 1–3% in 2024, up from the 1.1% expansion in 2023.
Singapore’s economic growth eased in the first quarter of 2024 after gathering pace in the latter half of 2023. While the manufacturing sector experienced a pullback from an electronics-led surge late last year, the tourism-related industries received some boost from an unprecedented line-up of large-scale concerts. These two factors are likely to be temporary and should dissipate in the coming quarters.
For the year as a whole, the trade-related and modern services clusters are expected to improve from 2023, propelled respectively by the ongoing recovery in the global electronics industry and projected peaking of global policy interest rates. Meanwhile, growth in the travel-related and domestic-oriented clusters will continue to moderate but stay above trend.

MAS Core Inflation was unchanged in Q1 2024 from the preceding quarter. When the impact of the increase in the GST and carbon tax is excluded, underlying inflation in the economy remained on a broad downward trajectory. Inflation for food and travel-related services fell markedly, and broadly offset higher inflation for electricity & gas and other services costs.
MAS Core Inflation is forecast to remain at around current levels in the next few months, reflecting further expected adjustments in services prices to catch up to earlier cost increases. However, as imported and domestic cost pressures remain contained and as cost pass-through progresses over the course of the year, core inflation should slow to a greater degree from Q4 onwards. It will fall further in 2025, as the transitory effects of the increase in the GST and carbon tax fade.
For 2024 as a whole, both MAS Core Inflation and CPI-All Items inflation are projected to average 2.5–3.5%. Excluding the impact of the GST rate hikes, both core and headline inflation are forecast to be lower at 1.5–2.5%.
Risks to the inflation outlook remain. Fresh geopolitical shocks could put upward pressure on imported costs while a stronger-than-expected domestic labour market could lead to a re-acceleration in wage growth. Conversely, an unexpected weakening in the global economy could induce a greater easing of cost and price pressures.

MAS kept the S$NEER policy band on an appreciation path in January and April 2024. The current positive rate of appreciation in the S$NEER policy band has been in place since October 2022.
Singapore’s GDP growth is projected to strengthen to around its potential rate in 2024. The slightly negative output gap should narrow and close by the end of the year.
MAS Core Inflation is expected to remain sticky for a few more months. However, barring further shocks, external and domestic cost pressures will remain contained. Core inflation should thus step down more discernibly in Q4, and fall further in 2025.
Against this backdrop, MAS assessed that the prevailing rate of appreciation of the policy band is needed to keep a restraining effect on imported inflation and domestic cost pressures, and sufficient for ensuring medium-term price stability.