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Singapore downgrades growth in Q4, but sticks with 2023 forecast

Singapore has seen some price pressures easing in recent months but inflation remains at about 5% Unsplash
Singapore has seen some price pressures easing in recent months but inflation remains at about 5%

Singapore’s economy grew slightly less than estimated in the fourth quarter, official data has showed, but the government has kept its forecast for annual growth in 2023 at 0.5 to 2.5 percent.

Gross domestic product grew 2.1 percent year-on-year in the fourth quarter, the Ministry of Trade and Industry said on Monday, slightly lower than the 2.2 percent growth in the government’s advance estimate due to slightly weaker construction and service sector growth.

Analysts had expected a 2.3 percent increase, according to a Reuters poll.

“Singapore’s external demand outlook for 2023 has improved slightly. In particular, growth in China is projected to pick up in tandem with the faster-than-expected easing of its Covid-19 restrictions,” said Gabriel Lim, permanent secretary for trade and industry.

“Growth outlook of the US and eurozone economies remains weak amidst tighter financial conditions, which will weigh on consumption and investment spending in these economies,” he added.

For the full year of 2022, GDP grew 3.6 percent. The initial estimate was 3.8 percent.

Analysts said some services industries would fare better this year as China reopens while manufacturing, especially electronics, is likely to weigh on growth in the short term.

Inflation remains elevated

Singapore has seen some slight signs of price pressures easing in recent months but inflation still remained elevated at about 5 percent.

The current central bank monetary policy stance remains appropriate, said Edward Robinson, deputy managing director at the Monetary Authority of Singapore. The next policy meeting is expected in April.

“One of the important sources of inflation that we will be monitoring and analysing quite carefully through this year is related to the labour market conditions both overseas in our key export markets, as well as domestically,” Robinson said.

He also pointed out that on a quarter-on-quarter basis, headline and core inflation had shown slight declining momentum, in line with expectations.

“Inflation is likely to subside gradually in H2 2023, but likely in fits and starts amid the volatile commodity prices, including food and energy,” said Selena Ling, head of treasury research and strategy at OCBC.

“Looks like the window remains open for a tightening if core inflation remains very sticky on the downside,” she added.

Meanwhile, the country’s sales tax was raised to 8 percent from 7 percent on January 1 as the government seeks more revenue to fund increasing healthcare spending for its ageing population. The sales tax will increase to 9 percent in 2024.

Since April last year, Singapore had lifted most of its Covid-19 restrictions with many international events returning to the city-state, attracting tourists and businesses. The remaining restrictions will be relaxed from Monday.

The Asian financial hub is expecting tourism to recover to pre-pandemic levels by 2024.