Private-sector economists raise inflation forecasts for Singapore, flag risks to economy

SINGAPORE: Private-sector economists have raised their 2022 inflation forecasts for Singapore amid higher energy and food costs, flagging sharper-than-expected price gains as the top downside risk ahead for the economy, according to a quarterly survey released on Wednesday (Jun 8).

Twenty-four economists and analysts polled by the Monetary Authority of Singapore (MAS) expect Singapore’s headline inflation to come in at 5 per cent this year, up sharply from the estimate of 3.6 per cent in the previous survey.

Core inflation, which excludes accommodation and private transport, is seen picking up to 3.4 per cent this year, also higher than the previous forecast of 2.7 per cent.

Both estimates are now at the upper end of the MAS’ official forecasts. The central bank has said it expects headline inflation for 2022 to average at 4.5 to 5.5 per cent, and core inflation to be between 2.5 and 3.5 per cent.

The acceleration in price gains has thus far spurred MAS to tighten monetary policy three times since October last year, which it said will slow the inflation momentum in Singapore.

Singapore Prime Minister Lee Hsien Loong last month also said that inflation will become a very serious problem for the world if measures are not taken to address it.

SLOWER ECONOMIC GROWTH

Economy watchers said that a sharper-than-expected rise in inflation, driven mainly by higher energy and food prices, will be the top downside risk to Singapore’s growth outlook.

Respondents were also concerned about downside risks from slower economic activity in China, as well as weaker-than-expected global growth driven in part by major economies like the United States and Eurozone. 

Against this backdrop, economists have downgraded their forecasts for Singapore’s full-year gross domestic product (GDP) slightly to 3.8 per cent this year, down from an earlier 4 per cent growth estimate.

The survey showed the outlook darkening for most macroeconomic indicators. In particular, the growth forecast for construction was shaved down to 5.9 per cent from 9 per cent previously.

Estimates for the accommodation and food services sector were reduced to 7.1 per cent from 9.1 per cent, while wholesale and retail trade is seen growing at 3 per cent, instead of 3.7 per cent.

The growth outlook for the finance and insurance sector was trimmed to 3.8 per cent, from 4.1 per cent. Likewise, for non-oil domestic exports, they are expected to grow by 6.3 per cent this year, compared with the last estimate of 7.8 per cent. 

Meanwhile, manufacturing, which makes up about one-fifth of Singapore’s economy, is set to remain a key bright spot for the year ahead. Economists expect the sector to grow 4.6 per cent, higher than the forecast of 4.1 per cent three months ago.

The outlook also brightened for private consumption, which saw an upgrade from 4.5 per cent to 6.6 per cent.

As for the labour market, respondents expect the unemployment rate to reach 2.1 per cent at year-end, slightly lower than 2.2 per cent previously.

Moving forward to 2023, Singapore’s GDP is projected to expand by 3 per cent, with inflation coming off their highs.

Economists see headline inflation at 3 per cent next year and core inflation at 2.8 per cent.

The latest quarterly survey was sent by the MAS at the end of May to economists and analysts who closely monitor the Singapore economy. This report does not represent MAS’ views or forecasts, the central bank said.