Q3 GDP beats estimates, MAS tightens monetary policy

Singapore’s economy grew more than expected in the third quarter compared to the same period last year, according to preliminary estimates released by the government on Friday.

Meanwhile, the country’s central bank tightened monetary policy for the fifth time in the past year, in line with expectations.

Gross domestic product in the July-September quarter came in at 4.4%, well above the 3.4% forecast by analysts in a Reuters poll, and in line with second-quarter growth.

The Southeast Asian country avoided a technical recession, with quarterly GDP growth of 1.5% on a seasonally adjusted basis, after a contraction of 0.2% in the second quarter compared to the first quarter. .

The Department of Trade and Industry in August cut Singapore’s GDP forecast for 2022 to 3% to 4% from a previous forecast of 3% to 5%.

Singapore business district buildings. Singapore’s third-quarter GDP beat estimates and its central bank tightened policy as expected.

Ore Huiying | Bloomberg | Getty Images

Singapore’s economy has “a bit of wind under our wings” as events, conferences and tourism return, said Selina Ling, chief economist at OCBC. This will help offset weakness in the manufacturing sector, she said.

There is a high level of uncertainty in 2023, Ling said, predicting a growth range of between 1% and 3% and explaining that there are imminent risks.

She pointed out that “there is downside risk depending on what happens with major economies” and cited the example of the US Fed aggressively raising borrowing costs despite slowing growth.

“I think that’s really what a lot of people are concerned about these days, when would policymakers start to pivot and say okay, the slowdown in growth has gone quite far,” a- she told CNBC’s “Squawk Box Asia.”

Alex Holmes, an economist at Oxford Economics, said Singapore’s 1.5% quarterly jump in GDP was unlikely to happen again, pointing to potential recessions in export markets. Inflation and interest rates will also be headwinds for domestic demand, he said in a note.

Singapore tightens its policy

Meanwhile, the Monetary Authority of Singapore has tightened policy in a widely expected move as rising costs continue to weigh on the economy.

The central bank said it would refocus the midpoint of its exchange rate policy band, known as the Singapore dollar’s nominal effective exchange rate, S$NEER.

Singapore controls its policy through its exchange rate rather than interest rates, and can also adjust the slope and width of the band. It manages the strength or weakness of the Singapore dollar against a basket of currencies from its major trading partners.

Core inflation will remain elevated over the coming quarters as imported inflation remains high and a tight labor market supports strong wage increases.

Monetary Authority of Singapore

The policy range is now in a “sweet spot” given worries about inflation and the weaker global growth outlook, analysts at DBS Group Research said in a Friday note. “Going forward, we believe that MAS will become more data dependent in future policy decisions.”

For its part, the central bank’s statement signaled concerns about rising prices.

“Underlying inflation will remain elevated over the coming quarters as imported inflation remains substantial and a tight labor market supports strong wage increases,” the MAS said.

The Singapore dollar last traded at 1.4234 against the dollar.

Increase in the goods and services tax

Regarding the planned increase in the Goods and Services Tax (GST) scheduled for January 2023 and 2024, the central bank said that it “will lead to a one-time increase in the price level”, although its impact on inflation ” should be transitory”. “

The MAS said that excluding the effects of the tax hike, it expects Singapore’s core inflation to remain above trend between 2.5% and 3.5% and inflation overall between 4.5% and 5.5%. In August, core inflation reached 5.1%, while headline inflation was 7.5%.

Markets have probably priced in a recession already - and a pretty big recession: UOB

OCBC’s Ling said factors other than the GST hike will play a bigger role in driving inflation.

The central bank “referred to the GST hike, but also indicated that there would be other structural factors underlying the inflation story,” she said.

“For the rest of 2023, it will depend on prices outside – such as energy, natural gas and on the home front,” she said, pointing to a tight labor market and rising wages.

Late Friday afternoon, Singapore’s finance ministry announced a 1.5 billion Singapore dollar ($1.05 billion) support package to deal with rising inflation. The package included cash, vouchers and subsidies for public transport, and was largely aimed at helping low- and middle-income citizens.


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