By Ronnie Harui
Recovery and Stabilization
According to the MAS, there are signs of cautious recovery in the manufacturing sector, driven by nascent signs of stabilization in the global electronics industry. Additionally, the financial services sector seems to have reached its bottom as interest rates stabilize. On the other hand, sectors such as travel-related and domestic-oriented industries are likely to normalize as the initial boost post-reopening fades away.
Future Prospects
Looking ahead to 2024, Singapore’s economic growth is expected to gradually improve in the second half of the year, ultimately coming in closer to its potential rate for the entire year, as per the MAS.
Inflation Outlook
The MAS predicts that imported inflation in Singapore will remain modest due to falling prices of global food commodities and manufactured goods. Additionally, the easing labor market tightness is expected to slow down unit labor cost increases and dampen services inflation.
Inflation Projections
Regarding inflation, core inflation is estimated to average around 4% this year but is projected to moderate and average between 2.5%-3.5% next year. Headline inflation is forecasted to be around 5% this year, but it should moderate and average between 3.0%-4.0% next year, according to the central bank’s report.
Exchange Rate Policy
To tackle imported inflation and mitigate domestic cost pressures, the MAS emphasizes the need for a sustained appreciation of the Singapore dollar’s nominal effective exchange rate policy band. It deems the current appreciation path of the SGD NEER policy band to be appropriately restrictive, considering the economy’s negative output gap and the overall disinflationary trend in costs and prices.
The MAS has a monetary policy centered on Singapore’s exchange rate, which it considers an effective tool for maintaining price stability in the small and open economy.
