Singapore's economy likely grew at a slower rate in the first quarter, but is projected to maintain its recovery trajectory this year as border restrictions are further lifted, allowing the central bank to tighten monetary policy to combat inflation. Advance data on Thursday are expected to show that gross domestic product (GDP) increased 3.8 percent year on year in January-March, according to the median forecast of 15 economists in a Reuters poll, as the manufacturing sector recovers from a high base and amid travel restrictions to contain a COVID-19 outbreak caused by Omicron.
Manufacturing remained the primary driver of growth, aided in part by semiconductor demand, experts said. In the fourth quarter of 2021, the city-GDP state's rose by 6.1 percent year on year.
Singapore's recent relaxation of border controls and COVID-19 regulations are expected to boost services in the second quarter, partially offsetting the negative impact of the Ukraine-Russia war, supply disruptions, and rising energy prices, according to Maybank economists Chua Hak Bin and Lee Ju Ye.
The trade-dependent economy expanded 7.6 percent last year, the strongest rate in a decade, after falling by 4.1 percent in 2020.
The administration forecast GDP growth of 3-5 percent in 2022, but that was before Russia launched what it refers to as a "special military operation" in Ukraine on Feb. 24. While analysts anticipate GDP to continue growing this year, they are eager to see whether official predictions are lowered downward when the central bank releases its monetary policy statement on Thursday.
Sixteen economists anticipate that Singapore's Monetary Authority will tighten policy, but they disagree on how aggressively and which policy settings would move.
Rather than using interest rates to guide policy, the MAS allows the local currency to increase or fall against the currencies of its major trade partners within an unknown range called the Nominal Effective Exchange Rate (NEER).
It adjusts its policy via three levers: the slope, mid-point and width of the policy band.
Senior FX Strategist at DBS, Philip Wee, anticipates a third steepening of the SGD NEER policy band's slope to 3%.
"We anticipate that the authority will leave the door open for another round of tightening in October. The MAS might raise the policy band six months after reverting to a 3% slope, as it did in April 2008 and April 2011," he said.
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