Price Stability

The Global Economy

• The trade policy shock confronting the global economy presents complex dynamics for growth and inflation. For countries imposing tariffs, it induces a negative supply shock, which would raise prices and weigh on consumption and investment. In the other countries, the tariffs reduce external demand for the tradable sectors, with disinflationary spillovers to the rest of the economy. The unpredictability of the trade policy environment causes businesses and households to defer their spending commitments.
• While output-based and labour market indicators have been resilient in Q1, in part supported by front-loading activities in anticipation of sizeable tariff increases, survey-based indicators on consumer and business confidence have started to deteriorate, which could portend at least some pullback in economic activity in the months ahead.
• The outlook for global GDP growth in 2025 is thus subject to a high degree of uncertainty. While there has been some de-escalation in trade tensions, its durability remains an open question. Importantly, the current level of tariffs and ongoing uncertainty will already put drag on investment and consumption. Meanwhile, global inflation is expected to remain relatively stable as the broad disinflationary impulses in most economies offset the tariff-induced price increases in the US.
• Further downside risks to global growth could emerge from higher tariffs if trade negotiations break down. In addition to the impact on domestic and external demand, the intensification of the trade policy shock could result in a sharp tightening in global financial conditions, with macroeconomic and financial stability repercussions.

The Singapore Economy

• Signs of weakness in the Singapore economy emerged in the first quarter of the year on a quarter-on-quarter basis, due to softening in the external-oriented manufacturing and modern services sectors. However on a year-ago basis, growth was firm, reflecting higher re-export activity, supported by front-loaded export orders.
• Singapore’s growth outlook remains cautious amid a challenging and uncertain global trade environment. As a highly trade-dependent economy with extensive supply chain linkages across the region, a large part of the tariff impact on Singapore will be transmitted via the regional economies. There are also indirect spillovers via the confidence channel, whereby global investment and spending is dampened, amplifying drags on Singapore’s growth.
• For 2025 as a whole, Singapore’s GDP growth is expected to slow to 0.0–2.0%, from 4.4% the year before.
• Prolonged trade tensions could pose downside risks to growth, through further disruptions in trade flows, undermining business investments and dampening global demand. Conversely, trade tensions may de-escalate over time, which could boost sentiments and export activity.

Inflation

• MAS Core Inflation eased significantly to below 1% in the first five months of this year, coming in below expectations.
• Inflation across a wide range of goods and services fell on the back of weak demand conditions and moderate underlying cost pressures. Enhanced government subsidies also contributed to lower inflation for essential services such as healthcare and education. 
• For the whole of this year, core inflation is projected to average 0.5–1.5%, down from 2.8% in 2024.
• In the near term, imported goods inflation facing Singapore should be modest against the backdrop of slowing global demand. Regional inflation, which has a more direct impact on domestic goods inflation, is expected to be subdued, reflecting in part an anticipated diversion of excess output from exporting economies into the region, including Singapore.
• Domestic cost pressures are also moderating. Unit labour cost increases are expected to slow due to easing nominal wage growth and improving labour productivity. Together with softer consumer spending, as well as enhanced government subsidies, these factors should temper inflation in the quarters ahead.
• The uncertainties around the outlook for inflation remain high amid the increased risks in the global environment. An intensification of drags on global and domestic growth could accentuate prevailing disinflationary pressures in Singapore. Nevertheless, there are also upside risks to inflation associated with geopolitical events and supply chain disruptions that could cause a sustained increase in global energy prices and transportation costs. 

Monetary Policy

• MAS reduced the slope of the S$NEER policy band slightly in January, and again in April 2025, with no change to the width of the band or the level at which it was centred. The S$NEER policy band remains on an appreciation path.
• The downshift in the global growth outlook and the escalation of trade conflict has put the Singapore economy on a path of weaker growth and slower inflation. 
• With the downgrade in Singapore’s GDP forecast range to a sub-par pace for 2025, the output gap will likely turn negative this year. 
• MAS Core Inflation has eased significantly in recent months and is expected to stay around 1% for the year as a whole.
• Against this backdrop, MAS assessed that a slower rate of appreciation in the S$NEER policy band was appropriate for ensuring medium-term price stability.
• Risks to growth and thus inflation this year are present, amid significant uncertainty in the external environment.