Macroeconomic Reviews
Published Date: 26 April 2024

Macroeconomic Review Volume XXIII Issue 1, Apr 2024

  • The continued resilience of the global economy is evident from the latest high-frequency indicators in early-2024. The benign growth backdrop will add momentum to the nascent upturn in the global electronics cycle, supporting the EM Asia economies. Looking ahead, 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 a restraining effect.
  • Following significant progress last year, the pace of disinflation in Singapore’s major trading partners, especially the AEs, has slowed. The road ahead is likely to be bumpy as the deflationary impulse from lower commodity and goods prices fade. Further, geopolitical risks or extreme weather events could result in supply-driven cost hikes. In the AEs, slower wage and strong productivity growth will be necessary to return inflation sustainably to their 2% targets.
  • Against this backdrop, the balance of risks appears to be still tilted towards persistent inflation. However, a delayed and slower pace of AE monetary easing could trigger latent financial vulnerabilities and consequently weigh on growth. For EM Asia, the combination of high AE bond yields, increased risk aversion, and USD appreciation would exacerbate the spillovers from weaker global growth and sentiment, imparting stresses on regional asset prices and those economies with substantial external financing needs.

Read More on Chapter 1 (196.8 KB)

  • Singapore’s economic growth eased sequentially in Q1 2024 after gathering pace in the latter half of 2023. There were two opposing transitory impulses at play during the quarter. While the tourism-related industries received some boost from an unprecedented influx of concerts, the economy was dampened by a pullback in the manufacturing sector following an electronics-led surge late last year.
  • These two factors influencing the Q1 outcome—the tourism industry pick up and manufacturing sector pullback—are likely temporary in nature and should dissipate in the coming quarters. A generally benign global backdrop, with broad alignment of the macroeconomic, tech and interest rate cycles, should enable the Singapore economy to attain growth of 1–3% in 2024, following the 1.1% expansion in 2023.
  • For the year as a whole, growth in the trade-related and modern services clusters are expected to improve from 2023, while that in the travel-related and domestic-oriented clusters will continue to moderate but stay above trend. Manufacturing and trade activity in Singapore should continue to benefit from the ongoing recovery in the global electronics industry, especially in the memory chip segment. Further, the projected peaking of global policy interest rates is expected to lead to some rebalancing of investment portfolios, which will in turn bolster financial sector activity. Meanwhile, growth in the tourism-related industries should taper from the concert-driven boost in Q1. Nonetheless, growth will still be underpinned by upcoming events of a smaller scale, as well as the continued recovery of Chinese tourists following the removal of remaining travel frictions.
  • This chapter also includes an analysis of Singapore’s long-term growth path amid business cost developments. While Singapore has managed to achieve strong economic growth without commensurate cost increases over the years, it will become increasingly challenging to stay on this benign course, as the operating environment becomes more supply-constrained in the coming years. Some within-sector consolidation is expected in response to the resulting cost increases, but Singapore can remain globally competitive through continued technological progress and total factor productivity growth.

Read More on Chapter 2 (387.8 KB)

  • Employment growth moderated across all broad sectors of the economy in Q4 last year, bringing the labour market closer into balance. Slowing labour demand in most sectors, along with the fading of bonus effects, led to a moderation in aggregate resident wage growth from earlier high rates.
  • In the first half of this year, employment growth is likely to remain modest before the anticipated pickup in VA growth later this year provides some support. Despite the relatively subdued growth in labour demand projected for 2024 as a whole, persistent labour supply constraints in certain services sectors imply that there is unlikely to be any significant uptick in labour market slack. Consequently, the resident unemployment rate should stay close to its long-term historical average.
  • Weaker labour demand in some external-facing sectors of the economy, combined with last year’s high base effects from atypically large bonuses, should more than offset wage pressures in the domestic-oriented services sectors. Overall, growth in average monthly earnings should slow to around the pre-COVID norm in 2024. Alongside an improvement in labour productivity, unit labour cost increases should ease this year.
  • MAS Core Inflation was unchanged in Q1 from Q4, coming in lower than expected. Inflation for food and travel-related services fell markedly, and broadly offset faster increases in electricity & gas prices arising from the carbon tax hike, and in other services costs. A further moderation in private transport and accommodation inflation also contributed to a decline in CPI-All Items inflation. Overall, underlying inflation in the economy remained on a broad downward trajectory, in line with easing business cost pressures. This underlying disinflation trend is affirmed by a range of alternative core inflation measures.
  • MAS Core Inflation is forecast to decline gradually over the course of the year but will only step down more discernibly in Q4 and into 2025. In the near term, core inflation will remain at around current levels reflecting the hike in water prices and further expected adjustments in services prices to catch up to earlier cost increases. However, as imported and domestic cost pressures continue to ease, the disinflation trend should continue. 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%.

Read More on Chapter 3 (281.6 KB)

  • In January and April this year, 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. MAS assessed that as inflation was expected to stay elevated in the immediate quarters ahead, the prevailing rate of appreciation of the policy band is needed to keep a restraining effect on imported inflation and domestic cost pressures. The gradually appreciating policy band is consistent with inflation stepping down more discernibly in Q4 and into 2025, and is sufficient for ensuring medium-term price stability.
  • Amid improving economic growth prospects and still-elevated inflation, Budget 2024 was tailored to provide further assistance to households and firms facing cost-of-living and cashflow concerns. At the same time, it set out the Government’s priorities in building a more productivity-driven economy and equitable society, in line with the vision laid out in the Forward Singapore report. Nonetheless, the Budget’s overall fiscal impulse for CY2024 was estimated to be appropriately restrained in aggregate. Overall, macroeconomic policy will continue to contribute to medium-term price stability and sustainable growth in the economy.

Read More on Chapter 4 (201.4 KB)