RHB Group's senior economist Barnabas Gan believes there is no need for Singapore to be worried about inflation risks despite higher goods and services tax (GST) rates, from 7% to 8% in 2023 and 9% in 2024.
Higher GST rates may support consumer prices but y-o-y impact will be washed out in the subsequent years, writes the economist.
“Our findings show that higher GST rates have little impact on consumer expenditure and overall growth,” says Gan.
“The Singapore economy is primarily driven by externally-facing industries which are essentially tangential to global trade. Retail sales saw little negative impact from higher GST rates,” he adds.
Gan also believes that retail sales in Singapore will grow by some 10% this year, as sales are expected to return to pre-pandemic times by the end of the year.
See: Retail sales in Singapore to return to pre-Covid levels: RHB
See also: Singapore’s February NODX falls by 15.6%; NODX to top 10 markets drop on a y-o-y basis
According to Gan, the higher government revenue will go a long way to finance Singapore’s medium-to-long term goals. He estimates that every 1% increase in GST rates will increase government revenue by $1.8 billion (or 0.3% of GDP) annually.
RHB expects Singapore’s GDP to expand by 3.5% in 2022, followed by 3.0% in 2023 and 2024, and forecasts inflation at 4.8% in 2022 amid higher commodity prices seen ytd while consumer prices are expected to decelerate to 3.0% in 2023