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Stumbling Upon Headwinds: Singapore’s Q1 GDP Growth Decelerates, Posing Challenges for Central Bank’s Ambitions

A Hesitant Ascent: First Quarter Economic Expansion Stalls

The year 2023 has dawned upon Singapore with a subtle deceleration in economic growth during its initial quarter, entangling the central bank in a complex web of sustaining delicate growth while grappling with tenacious inflation. Awaiting release on Friday, preliminary figures suggest a tepid 0.6% GDP growth for Q1, when juxtaposed against the same timeframe in the previous year, primarily attributed to faltering external demand.

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In stark contrast, the final quarter of 2022 witnessed a 2.1% year-on-year expansion in Singapore’s economy. Regrettably, the manufacturing sector – a crucial growth propellant – has been shackled by a five-month contraction, stemming from dwindling global appetite for semiconductors and non-oil domestic exports.

Silver Linings: Services Industry Counterbalances Manufacturing Downturn

Beneath the overcast skies of a declining manufacturing sector, the services industry emerges as a beacon of hope, poised to offset the downturn. Selena Ling, OCBC’s head of treasury research and strategy, emphasizes the resurgence of visitor arrivals, notably from China, as a catalyst for invigorating the hospitality and F&B sectors. Complemented by an auspicious labor market, private consumption receives a much-needed boost. Ling envisions the services sector as the torchbearer of GDP growth in forthcoming quarters.

Rewinding to 2022, Singapore’s trade-reliant economy recorded a 3.6% expansion, a notable deceleration from the impressive 8.9% in 2021. Authorities project a modest GDP growth of 0.5-2.5% for 2023, pinning their hopes on aviation and tourism-related sectors’ rejuvenation, while acknowledging the susceptibility of externally oriented sectors to the global economic downturn.

Balancing Act: Central Bank’s Policy Quandary Amid Inflation and Murky Prospects

The Monetary Authority of Singapore (MAS) confronts a perplexing dilemma concerning policy alterations, as it navigates through a murky economic landscape and persistent inflationary pressures. Core inflation has skyrocketed to a 14-year pinnacle, at 5.5%. The central bank has tightened the monetary policy reins five times in succession, with the most recent adjustment in October 2022.

A Reuters survey of 17 economists unveils that six of them anticipate MAS maintaining its current policy to foster economic growth. Nevertheless, opinions diverge on the specific course of action the central bank should adopt if it opts for a more restrictive policy.

February saw Singapore bid adieu to all COVID-19 restrictions, setting the stage for a full recovery of its tourism sector by 2024.

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