Macroeconomic Reviews
Published Date: 30 October 2023

Macroeconomic Review Volume XXII Issue 2, Oct 2023

  • The global economy has displayed remarkable resilience despite aggressive monetary policy tightening by AE central banks over the past year. While economic activity has slowed, there are few signs of major dislocations. Meanwhile, headline inflation has fallen in an orderly manner, as the effects of the commodity price shock arising from the Russia-Ukraine war receded, while supply chain pressures have largely resolved.
  • Looking ahead, global economic activity is expected to ease further into 2024, reflecting in part the cumulative impact of monetary policy tightening since early-2022. However, growth is likely to remain uneven. AE growth is set to slow over the coming quarters. At the same time, China’s pace of recovery is expected to be weighed down by ongoing weakness in its property market and local government fiscal constraints. Despite the softening external outlook, resilient domestic demand will provide some offsetting support to growth for Asia ex-Japan.
  • On the inflation front, the pace of disinflation is likely to be slower in 2024 compared to 2023. Still-tight labour markets and elevated wages in the AEs as well as the emergence of fresh price impulses, particularly from global oil and some food prices, are possible frictions to further disinflation. In general, the Asian economies are closer to achieving their inflation targets, but are more vulnerable to volatility in food and energy prices and higher imported inflation arising from a stronger US$.
  • Notwithstanding the generally benign prognosis, there are some risk factors that could derail the baseline outcome, including a sharper-than-expected slowdown in China, stubborn inflation from stronger wages as well as higher commodity prices, and further tightening in financial conditions.

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  • Singapore’s GDP growth picked up in Q3 2023, after stalling in the previous three quarters. There were signs of convergence in the three-speed clusters of the economy, with some recovery in the external-facing sectors, such as manufacturing, even as growth in the domestic-oriented sectors moderated.
  • These adjustments are expected to continue in the coming quarters, barring major shocks to the external economies. Manufacturing in Singapore should see a cautious recovery alongside nascent signs of stabilisation and a tentative pickup in the global electronics industry, although growth could be lacklustre for an extended period. Likewise, financial services growth appears to have bottomed out amid plateauing interest rates. Conversely, the double-digit growth rates seen in the travel-related services will taper off, while the domestic-oriented sector is expected to normalise towards its lower steadier growth path.
  • For 2023 as a whole, Singapore’s GDP growth is projected to be at the lower half of the 0.5–1.5% forecast range. Although there is still uncertainty about the strength of external final demand around the turn of the year, GDP growth is expected to improve gradually in the second half of 2024, and come in closer to its potential rate for the full year.
  • This chapter also includes an analysis of the progress of middle-income workers in Singapore over the past decade using longitudinal administrative data. Apart from the education premium, upward income mobility was found to be strongly associated with shifts to larger or more productive firms. Amid demographic and technological changes in the next stage of Singapore’s economic development, the income growth of the broad middle would depend on the corporate sector’s ability to create good jobs by taking advantage of technology and scale, and a tripartite effort to reskill and upskill workers to enable them to take on more productive and well-paying jobs.

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  • Tightness in the labour market continued to recede as weakness in the external-facing sectors tempered labour demand while the recovery in the non-resident workforce helped ease manpower shortfalls. The expansion of the non-resident workforce also led to a decline in labour market mismatch.
  • Over the next few quarters, some further softening of the labour market is expected. Nevertheless, overall employment growth would stay supported by the domestic-oriented services and travel-related sectors. Furthermore, labour demand in the external-facing industries could firm in the latter part of 2024. Coupled with structural constraints on the resident labour force, the resident unemployment rate is unlikely to rise significantly. Labour tightness will likely remain pronounced in some labour-intensive services sectors.
  • Nominal average monthly earnings growth for residents should fall considerably in 2024, amid declining nominal GDP growth and the normalisation of bonus payments following an atypical jump this year. ULC will therefore rise at a more moderate pace than in 2023, although the extent of slowing will depend on the economy’s short-term productivity performance.
  • MAS Core Inflation eased further in Q3, with the pace of price increases moderating across a broader range of consumer goods and services, compared to Q2. Food and services inflation, in particular, fell amid easing supply conditions and soft consumer demand in some sectors. Although global oil prices have risen in recent months, most other upstream price indicators have continued to decline. Core inflation is therefore expected to reach 2.5–3.0% by year-end. For 2023 as a whole, core and headline inflation are projected to average around 4% and 5%, respectively.
  • MAS Core Inflation is expected to edge up in Q1 next year, reflecting in part the increase in the GST rate. However, core inflation should thereafter resume its broad moderating trend. On the external front, favourable global supply conditions for non-energy goods should continue to dampen imported inflation for food and retail goods. The easing in domestic labour market tightness will also result in slower services ULC growth in 2024, and undergird the continued moderation in services inflation. Nonetheless, inflation will remain somewhat elevated in certain services as accumulated costs are passed through.
  • For 2024 as a whole, MAS Core Inflation is projected to slow to an average of 2.5–3.5%, while headline inflation is forecast to come in around 3.0–4.0%. Excluding the effect of the GST rate increases, the forecast ranges for core and headline inflation are 1.5–2.5% and 2.5–3.5%, respectively. Upside risks to inflation remain, including from additional shocks to global food and energy commodity prices, and stronger-than-expected wage pressures. Conversely, an unexpectedly sharp deceleration in global economic growth could also lead to more rapid-than-expected deceleration in inflation.

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  • In October, MAS maintained the prevailing rate of appreciation of the S$NEER policy band, with no change to the width of the band or the level at which it was centred. Core inflation has peaked, broadly eased in line with expectations and is forecast to fall to 2.5–3.0% by end-2023. MAS assessed that the current appreciating path of the S$NEER policy band is sufficiently tight, against the small negative output gap which will persist in 2024, as well as the expected further moderation in underlying inflation. The sustained appreciation of the policy band will continue to dampen imported inflation and curb domestic cost pressures, and thus ensure medium-term price stability.
  • Budget 2023 was a carefully formulated package that built on the key fiscal policy thrusts laid out in previous budgets. It enhanced near-term support to households and firms to address cost-of-living and cashflow concerns, but also underscored the government’s commitment to addressing structural challenges and building a more inclusive society. In September, an additional Cost-of-Living support package was announced to provide further relief to households, with lower- to middle-income families receiving more assistance.

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