• The global economy has remained broadly resilient since the April Review. Most of Singapore’s key trading partners saw an increase in growth momentum in Q2. In the region, despite China’s growth slowdown, the ASEAN economies were buoyed by the ongoing tech cycle recovery, as well as firmer domestic demand. Meanwhile, global disinflation has progressed further in recent months, with services inflation finally easing meaningfully alongside a moderation in labour cost pressures.
• Barring major shocks and discontinuities, the last mile of disinflation should remain on track in 2025, alongside steady growth in most economies. Aggregate demand should continue to expand, underpinned by firm household spending and business investment, with additional support coming from the near-synchronised easing of global monetary policy.
• Nonetheless, uncertainties on both growth and inflation are elevated. Geopolitical events arising from potential escalation of the ongoing military conflicts and trade tensions pose heightened risks to growth. On the inflation front, a significant and sustained escalation in the Middle East conflict that disrupts oil production and shipping routes could impart fresh impulses to inflation.

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• The recovery in the Singapore economy has become more entrenched in Q3 2024, with close to 60% of the economy growing at around or above pre-pandemic trends. The strong performance was largely attributed to manufacturing and export activities which had gained traction. Growth in Q3 was also supported by the financial sector, underpinned by robust trading activity. Meanwhile, the tourism-related sectors received a boost from a pickup in Chinese tourists.
• This recovery should continue apace for the rest of 2024 and into 2025. Growth in the trade-related cluster will remain supported by the constructive outlook for the global economy and the tech cycle recovery. In the financial sector, lending and trading activities are expected to pick up further amid the easing of global financial conditions. Accordingly, Singapore’s GDP growth for 2024 is projected to come in around the upper end of the 2–3% forecast range. The economy is expected to expand at a broadly similar pace next year.
• Although the outlook for 2024 is mostly secured, there are downside risks to growth next year should an acute escalation in geopolitical and trade tensions or a sharper growth slowdown in China set in. Additionally, a correction in the AI-led global tech cycle recovery could potentially emerge and weigh on growth as well.
• ASEAN countries have mostly benefited from the diversion of electronics trade between the US and China, through increased foreign direct investment inflows which have built up their production and export capabilities. The region can continue to gain by specialising in different parts of the value chain, with Singapore leveraging its comparative advantage in producing upstream and midstream electronics components and providing supporting intermediation services to trade.

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• In the first half of 2024, the domestic labour market continued to ease relative to last year, as hiring slowed further. Nonetheless, the unemployment rate remained low amid stable levels of involuntary job separations. Nominal wage growth also slowed, albeit from a high base, across more sectors in the economy.
• The ongoing upturn in economic activity should support job creation in the quarters ahead. Nevertheless, labour demand is unlikely to be strongly resurgent, as the GDP growth pickup is largely being driven by capital-intensive sectors. In addition, some evidence of labour hoarding amid structural constraints on labour supply should put a cap on the pace of employment expansion.
• Nominal wage growth is expected to ease further in 2025, but will settle slightly above the pre-COVID norm on account of manpower constraints and policies to raise the relative wages of lower income workers. Labour productivity growth is expected to improve this year and next, which would temper the impact of continuing wage cost increases and help ensure stronger real wage gains.
• Inflation continued to decline steadily in Q3, amid a marked deceleration in the pace of price increases for both goods and services. Lower imported fuel and food costs, due in part to the appreciating S$NEER, as well as slowing unit labour cost increases contributed to the fall in inflation. Alternative measures of underlying inflation in the economy affirm the broad-based nature of the disinflationary trend, which likely indicate that accumulated costs have been almost fully passed through to prices. As such, absent fresh cost impulses, y-o-y core inflation is expected to decline further to reach around 2% by the end of 2024.
• In 2025, core and headline inflation are both expected to average 1.5–2.5%, compared to the 2024 forecast of 2.5–3.0% and around 2.5%, respectively. Inflation is expected to be lower next year as cost pressures stay contained. Commodity prices and global inflation remain moderate while growth in unit labour cost for the services sector should slow further. The latter, together with enhanced government subsidies for essential services to temper cost of living pressures, will dampen services inflation. The upside risks to inflation are now broadly countervailed by the growing possibility of inflation coming in below 2%, such that risks to inflation have become more balanced.

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• In July 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.
• In Q3, Singapore’s GDP growth had picked up on the back of the global tech cycle upswing, and the slightly negative output gap was expected to close in H2. Core inflation had continued to moderate and was projected to fall to around 2% by the end of 2024. Against this backdrop, MAS assessed in October that monetary policy settings were for now still consistent with the mandate of ensuring medium-term price stability. In 2025, significant uncertainty in the global economy implies that both upside and downside risks to the inflation outlook are present, but these have become more balanced.
• Even as the implementation of Budget 2024 continued to provide near-term support to households and firms, the fiscal impulse for CY2024 is estimated to have a restrained impact on inflationary pressures. The Budget also included the first instalment of the Forward Singapore agenda, which laid the foundations to better position the economy for future challenges and build a more equitable and inclusive society.

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Boxes

Box A: Carbon Pricing in Asia (143.5 KB)

Box B: Exchange Rate Pass-Through to Inflation in Singapore (227.5 KB)

Box C: Review of MAS Money Market Operations in FY2023/24 (108.7 KB)

Special Features

Special Feature A: Proceedings of the 2024 Asian Monetary Policy Forum

Special Feature B: A Perspective on Inflation Targeting

Special Feature C: Globalisation is Not Dying, It’s Just Changing