Singapore’s economic growth prospects for 2023 have become more uncertain amid banking stresses abroad and weakness in the trade-related sectors, says the Monetary Authority of Singapore (MAS).

Since the last quarter of 2022, Singapore’s economy has “slowed discernibly”, weighed down by contractions in the trade-related sectors amid the global manufacturing downturn, says the MAS in its Macroeconomic Review published April 26.

Published twice a year, the Macroeconomic Review documents the Economic Policy Group’s analysis and assessment of global and domestic economic developments, which form the basis for policy decisions conveyed in the Monetary Policy Statement (MPS).

Advanced estimates released by the Ministry of Trade and Industry show that the Singapore economy contracted by 0.7% on a q-o-q seasonally-adjusted basis in 1Q2023, following the marginal 0.1% expansion in 4Q2022.

In its April MPS, MAS maintained the prevailing rate of appreciation of the S$NEER policy band, marking its first “pause” after five consecutive rounds of tightening since October 2021.

In the first quarter of the year, MAS core inflation rose further, reflecting the expected boost to consumer prices from the GST rate hike. MAS expects core inflation to remain elevated over the next few months before dipping to around 2.5% by the end of 2023 and average between 3.5% and 4.5% for the year as a whole.

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At the same time, output in the Singapore economy could slip more significantly below potential given the intensifying risks to the global growth outlook.

Against this backdrop, MAS believes that the prevailing monetary policy stance is “sufficiently tight and appropriate” for securing medium-term price stability. The effects of its five most recent monetary policy tightening moves are also still filtering through to the economy and will dampen inflation further, says the central bank.

Resident wage growth easing

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Although domestic cost pressures are likely to persist in some sectors, their pass-through to consumer prices would be constrained by higher domestic interest rates and falling real wages.

Resident wage growth is anticipated to ease alongside the moderation in domestic labour market tightness in 2023, particularly in the external-facing sectors. While employment gains in the domestic-oriented sector continued to rise in 4Q2022, the expansion of the workforce in the external-facing sectors slowed amid global economic headwinds.

MAS expects nominal resident wage growth to continue to moderate over the course of 2023, as ongoing inflows of non-resident workers and softening overall labour demand alleviate the “excessive tightness” present in the labour market at the start of this year.

Within the next few quarters, this should “temper “the pace of wage increases.

But while wage growth is expected to ease further, MAS says it will stay above its historical average, with growth expected to “remain firm” in the travel-related and domestic-oriented sectors.

Policies to uplift wages for lower-income resident workers will also boost overall wage growth, adds the central bank. “Policy and administrative factors will put a floor on the extent to which resident wage growth in certain industries eases in the near term.”

These policies to uplift incomes of lower-wage workers include recent enhancements to the Progressive Wage Model, which are estimated to provide a “moderate boost” of 0.2% points to the average nominal wage growth this year. Salary increments in the civil service, healthcare and education sectors will also support overall resident wage growth.

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However, MAS notes that it expects to see “significant variation” in the rise in wages across sectors, given their differing cyclical and structural dynamics. Wage growth is projected to be higher for travel-related and domestic-oriented sectors such as the consumer service and construction sectors.

While “lingering” labour supply shortfalls in some service sectors and the continuing recovery of the travel-related cluster contributed to strong demand for resident workers in 4Q2022, the tightness has gradually eased, albeit at uneven rates, says MAS.

In the last quarter of 2022, the number of employees placed on short workweek or temporary layoff rose, with the number of retrenchments picking up to reach a level similar to the pre-Covid average. There was also a slowdown in labour market “churn”, indicating that job-hopping among workers to higher-wage positions could have stabilised, says the MAS.

The decline in job vacancy rates and increase in retrenchments were “more pronounced” in the trade-related and modern services sectors due to their higher exposure to tighter financial conditions and weakening global demand.

Still, the labour market is expected to remain tight overall this year, reflecting in part persistent supply constraints. Manpower shortfalls are likely to remain in services industries such as the F&B and retail sectors for 2023.

MAS says that the increase in relative cost for hiring non-resident workers should encourage employers to automate their processes or switch to resident workers with “comparable skill profiles” where possible.

Resilient job creation in these labour-intensive sectors are expected to offset the hiring slowdown and “pockets” of retrenchments that external-oriented industries like trade and manufacturing face as they continue to cope with the global slowdown.

Global picture not promising

Globally, MAS expects growth to weaken over 2023, as substantial monetary policy tightening over the past year filters through to the real economy and tail risks increase. While global headline inflation is forecast to moderate, core inflation remains above central banks’ targets, notes MAS.

Meanwhile, risks and uncertainties in global growth have also risen, with the rise in global interest rates surfacing “latent vulnerabilities” within the financial system. These factors present risks to global financial stability and the growth outlook of the global economy.

“The near-term outlook remains uncertain with downside risks. Should latent vulnerabilities in the global financial system emerge in the coming months, consumer and investor confidence could take a further hit, with adverse implications for the broader economy,” says the central bank.

Following the “firm start” to 2023, the MAS expects global economic activity to “slow markedly” over the coming quarters, as the full impact of rapid and simultaneous tightening over the past year filters through to the real economy. The boost from economic reopening and pent-up consumer demand is also set to wane.

“A broadening slowdown in the global electronics industry and banking stresses abroad have dampened Singapore’s growth prospects, especially for the external-facing sectors. At the same time, the pace of expansion in the domestic-oriented sectors should also moderate as higher consumer prices and interest rates restrain spending,” writes the MAS. On the other hand, domestic-oriented sectors have remained “generally firm” thus far.

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