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Singapore does not expect a recession or stagflation in 2023, but significant headwinds remain: MTI

Singapore does not expect a recession or stagflation in 2023, but significant headwinds remain: MTI

People wearing protective face masks waiting to cross the road at Church Street on Sep 6, 2021. (Photo: CNA/Gaya Chandramohan)

SINGAPORE: Singapore does not expect its economy to slip into a recession or stagflation next year, said Minister of State for Trade and Industry Alvin Tan in Parliament on Monday (Jul 4), although he warned that globally, “significant” headwinds remain.

So far this year, local economic activity has remained “resilient” despite rising inflation, he added in a response to parliamentary questions from Members of Parliament (MPs) about the economic outlook.

The current growth forecast for 2022 is for the Singapore economy to expand at the lower end of a 3 per cent to 5 per cent range. Moving into next year, policymakers “expect growth to moderate further” but “do not expect a recession or stagflation” at this stage, Mr Tan said.

Stagflation, a combination of economic stagnation and inflation, refers to a situation where an economy faces the twin challenges of slow economic growth and joblessness amid rising inflation.

That said, Mr Tan noted that “significant” risks remain in the global economy, such as further escalations in the Russia-Ukraine conflict, more severe global supply disruptions, faster-than-expected monetary policy tightening in advanced economies and the COVID-19 pandemic.

Singapore, being a small and open economy, cannot be insulated from increasingly challenging developments in the external environment, he added.

In particular, the country has experienced a significant rise in inflation on the back of rising food and energy costs.

Latest data showed headline inflation rose to 5.6 per cent in May, up from 5.4 per cent in April and hitting its highest reading since November 2011 when headline inflation reached 5.7 per cent.

Core inflation, which excludes private transport and accommodation costs, went up from 3.3 per cent in April to 3.6 per cent in May – the index’s peak since December 2008 when core inflation came in at 4.2 per cent.

“Inflation is likely to pick up further in the coming months but should start to moderate towards the end of the year if external inflationary pressures recede,” said Mr Tan.

Official estimates for full-year inflation in 2022 remain at a range of 4.5 to 5.5 per cent for headline inflation, while core inflation is expected to come in between 2.5 and 3.5 per cent.

“Notwithstanding rising inflation, economic activity in Singapore has remained resilient thus far,” Mr Tan said, citing how the economy grew by 3.7 per cent year-on-year in the first quarter.

Non-oil domestic exports and industrial production also remained “healthy” in April and May, up by 9.3 per cent and 10 per cent year-on-year respectively.

Likewise, retail and food and beverage sales volumes increased by 8.4 per cent and 6.9 per cent year-on-year respectively in April, reflecting a continued recovery from the pandemic.

These point to “firm” consumption spending, said Mr Tan, noting that the high inflation readings in recent months “have not led to any significant cutbacks, at least in household consumption”.

“In fact, spending on food services, as well as wearing apparel and footwear, has seen a discernible step up relative to (the first quarter of) 2022 in the month of April following the removal of mobility restrictions,” he added in response to a supplementary question from MP Desmond Choo (PAP-Tampines).

For the rest of the year, Mr Tan said the recovery in international travel and domestic demand amid the easing of pandemic restrictions will help to mitigate some of the weaker external demand.


Turning to the issue of rising global interest rates, Mr Tan said central banks of many economies have started to raise rates as a way to combat surging inflation.

In line with higher global interest rates, Singapore’s domestic interbank interest rates have also risen, although the strengthening of the Singapore dollar has helped to moderate the extent of the increase, he added.

Lending and mortgage rates here have gone up as a result of higher domestic interbank interest rates.

Mr Tan cautioned: “As global interest rates could increase further, businesses and households should bear in mind the rising cost of borrowing when making borrowing decisions.”

Acknowledging concerns among businesses and Singaporeans, he said the Government plans to address the challenging environment in three ways.

One is to maintain a stable macroeconomic environment that will allow businesses to make investment and operational decisions with confidence.

The Monetary Authority of Singapore (MAS) has tightened monetary policy three times since October last year. The appreciation of the Sing dollar will help to temper imported inflation, he said.

The Government also announced a S$1.5 billion support package last month to provide immediate and targeted relief for lower-income and vulnerable Singaporeans. 

In addition, the Ministry of Trade and Industry will continue to attract investments and foster new growth engines.

“Strong job creation and wage growth are the best ways to combat inflation,” said Mr Tan.

Source: CNA/sk(ac)


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