Singapore

Singapore has a remarkable track record of economic growth, with an average rate of +5.4% in the 2000s and +5.0% in the 2010s. After the economy was severely hit by the pandemic, with a -3.9% GDP decline in 2020, a robust recovery followed with +8.9% growth in 2021 and +3.6% in 2022, driven by enhanced corporate and household confidence, as well as rebounding external demand. However, the economy has been facing headwinds in 2023, notably weakness in trade-related sectors amid the global manufacturing downturn. The deep retraction in the global electronics industry and banking stresses abroad have dampened Singapore’s growth prospects, especially for export-dependent sectors. Furthermore, elevated inflation is likely to persist as business costs significantly escalated throughout 2022, potentially hindering private consumption growth. Overall, we expect the economic growth to decelerate sharply to less than +1% in 2023, followed by a mild recovery to around +2% in 2024.

Fiscal support has helped Singapore trspond effectively to crises, with measures such as cash payouts, wage subsidies and financial support for some targeted sectors (e.g. tourism). This pushed the fiscal balance into a large deficit of -6.8% of GDP in 2020 compared with a +3.8% surplus in 2019. The economic recovery and reduced broad-based supportive measures have brought the fiscal balance back to normal, with surpluses of +1.2% in 2021 and +0.4% in 2022. Public debt is very high on paper (134% of GDP in 2022) but it presents little risk as it is mostly denominated in local currency and covered by government assets.

The Monetary Authority of Singapore (MAS) has tightened monetary policy five consecutive times since October 2021 to temper the momentum of price increases. Headline consumer price inflation rose to a peak of 7.5% in August-September 2022 while core inflation hit 6.5% in January 2023, with the latter being in part attributable to the increase in the GST rate and tobacco duties. Services inflation has also remained elevated due to the sustained pass-through of increased business costs. Consequently, while Singapore's GDP growth was expected to decelerate, further tightening of monetary policy was deemed necessary to help alleviate persistently higher inflation and ensure medium-term price stability. The current appreciating path of the Singapore dollar nominal effective exchange rate (S$NEER) policy band appears sufficiently tight and appropriate for securing medium-term price stability. This policy stance should continue to reduce imported inflation and help curb domestic cost pressures. We forecast average annual headline inflation of approximately 4.8% in 2023 and 2.1% in 2024.

Singapore offers a prime business environment for corporations. The World Bank’s annual Worldwide Governance Indicators surveys suggest that the regulatory and legal frameworks are business-friendly and the level of corruption is low. Likewise, the Heritage Foundation’s annual Index of Economic Freedom surveys have put Singapore at rank 1 out of some 184 economies since 2020, reflecting very strong scores with regard to property rights, government integrity, tax burden, government spending, business freedom, labor freedom, trade freedom, financial freedom and investment freedom. However, Singapore scores less favorably with regard to environmental sustainability, owing to a very low level of renewable electricity output and a high level of water stress. In all, Singapore ranks 79th out of 210 economies in our proprietary Environmental Sustainability Index.

On the whole, Singapore’s political environment is stable and efficient. In recent developments, the ruling People’s action party (PAP), run by Lee Hsien Loong, has ceded some ground in the polls to the Workers’ Party since its victory in July 2020. The PAP will aim to shore up its political base by providing additional support to manage cost-of-living issues and addressing growing concerns about social inequality. It is also increasingly opening up on societal issues to keep the young electorate at a moment when the “3rd generation” PAP leaders, or “3G”, are to hand power over to “4G” members. However, press freedom, especially for foreign outlets, remains under strain as the government will clamp down on any criticism it deems “illegitimate”. This is partly why the country is sometimes referred to as a “flawed democracy”.