Singapore: Strong growth, high inflation, and tighter policy
Singapore’s advanced GDP estimates for 3Q22 saw economic growth regaining momentum despite external headwinds. But we believe this may ease in the coming quarters.
Group Research - Econs, Irvin Seah14 Oct 2022
  • Advance GDP growth for 3Q22 was stronger than expected at 4.4% YoY and 1.5% QoQ sa
  • Yet, growth momentum may ease in the coming quarters
  • Implications for our forecast – Lowering GDP growth for 2023 to 2.2%
  • Implications for investors – Next policy move will be data dependent
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Advanced GDP estimates for 3Q22 announced today saw economic growth regaining momentum despite external headwinds. Headline GDP growth registered 4.4% YoY, down just a tad from 4.5% in the previous quarter. Notably, the economy bounced back from a decline of 0.2% QoQ sa in 2Q22 to record a strong showing of 1.5% compared to the previous quarter.

Further easing of the COVID measures has been the fundamental reason behind the rebound. Tourist arrivals is now near pre-COVID levels. A strong pent-up demand domestically is further icing on the cake. Overall services sector is projected to record a robust expansion of 6.1% YoY (2.5% QoQ sa) on account of the impetus from the easing of COVID measures, and resumption of travel. This is much in line with our long-held expectation that services will help to pick up some of the slack in manufacturing and keep the economy on firm ground despite rising external headwinds.

However, manufacturing growth is slowing. Real NODX has been falling since Feb22, with weakening in demand from China being a key drag. China is behind the curve in terms of the pivot to being COVID endemic. Its “zero-COVID” policy has been weighing down on domestic demand and regional supply chains, thereby exerting downward pressure on Singapore’s manufacturing performance. Concomitantly, global demand is weaking amid tighter monetary conditions and higher inflation. Even electronics demand is waning. We continue to expect softer manufacturing performance in the coming quarter, as manufacturing turns from a driver to drag on economic growth.

Indeed, external headwinds are certainly picking up. Tighter monetary conditions, high inflation and geopolitical tensions will exert even greater pressure on global economic growth momentum in the coming quarter. DBS has recently lowered our 2023 growth forecasts for the US and China down to 0.3% and 4.0%, respectively. Likewise, we are revising our 2023 GDP growth forecast for Singapore to 2.2%, down from 3.0% previously.

Meanwhile, inflation has continued to surprise in the past two months’ readings. Headline CPI inflation spiked up to 7.5% in Aug22, after hitting 7.0% the month before. With consecutively two months of above 7% readings, we now expect the price barometer to average 6.0% for the full year. Factoring in the upcoming GST hike and elevated inflationary pressure globally, we foresee headline CPI inflation to average 6.3% in 2023, with core inflation for the full year likely to come in 4.2%.

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Note: All views expressed are current as at the stated date of publication.


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