Singapore Averts A Recession As The Economy Expands In The Third Quarter

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

Separately, the country’s central bank tightened monetary policy for the fifth time in a year, as predicted.

The July-September quarter GDP was 4.4%, much higher than the 3.4% predicted by analysts in a Reuters poll and in line with growth in the second quarter.

The Southeast Asian country avoided a technical recession, with quarterly GDP growth of 1.5 per cent on a seasonally adjusted basis, following a 0.2% contraction from the first quarter.

The Ministry of Trade and Industry reduced Singapore’s GDP forecast for 2022 to 3 per cent to 4 per cent in August, down from 3 per cent to 5 per cent previously.

Buildings in Singapore’s business district on Saturday, October 8, 2022. Singapore is expected to release its third-quarter advanced GDP estimate on October 10, 2022.

Buildings in Singapore’s business district. Singapore’s GDP for the third quarter exceeded expectations, and the country’s central bank tightened policy as expected.

According to Selina Ling, chief economist at OCBC, Singapore’s economy has “a bit of wind under our wings” with the return of events, conferences, and tourism. She believes this will help offset weakness in the manufacturing sector.

According to Ling, there is a high level of uncertainty in 2023, with growth ranging from 1 per cent to 3 per cent and looming risks.

She stated that “there is downside risk depending on what happens with the major economies,” citing the United States as an example. Despite a slowing economy, the Fed is aggressively raising borrowing costs.

“I think that’s really what is troubling a lot of people these days, at what point would the policymakers start to pivot and say that okay, the growth slowdown has gone far enough,” she said.

According to Oxford Economics economist Alex Holmes, the 1.5% quarterly increase in Singapore’s GDP is unlikely to be repeated, pointing to potential recessions in export markets. Inflation and interest rates, he said in a note, will also be drags on domestic demand.

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

The central bank announced plans to realign the midpoint of its exchange rate policy band, known as the Singapore dollar Nominal Effective Exchange Rate, or S$NEER.

Singapore can adjust the slope and width of the band through its exchange rate rather than interest rates.

It manages the Singapore dollar’s strength or weakness against a basket of currencies from its main trading partners.

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

Given concerns about inflation and weaker global growth prospects, the policy band is now in a “sweet spot,” according to DBS Group Research analysts in a Friday note. “In the future, we believe the MAS will become more data-driven in its policy decisions.”

The central bank, for its part, expressed concern about rising prices in its statement.

“Core inflation will stay elevated over the next few quarters, as imported inflation remains significant and a tight labor market supports strong wage increases,” the MAS said.

The planned increase in the goods and services tax (GST) for January 2023 and 2024 “will result in a one-time step-up in the price level,” according to the central bank, though its impact on inflation “should be transitory.”

The MAS stated that, excluding the effects of the tax increase, Singapore’s core inflation will remain above trend at 2.5 per cent to 3.5 per cent, and headline inflation will be between 4.5 per cent and 5.5 per cent. Core inflation rose to 5.1% in August, while headline inflation was 7.5 per cent.

According to Ling of OCBC, factors other than the GST increase will play a larger role in driving inflation.

The central bank “made some reference to the GST hike, but also indicated that other structural factors would underpin the inflation story,” she said.

“For the rest of 2023, it will come down to external prices — such as energy, natural gas, and on the domestic front,” she said, pointing to a tightened labor market and increase in wages.

(Adapted from


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s