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Economy grows at a faster rate in 3Q23 than estimated, yet MAS warns that domestic recovery could be

Written by: Aayudh Sen



According to preliminary data from the Ministry of Trade and Industry (MTI), Singapore's gross domestic product (GDP) showed accelerated growth in the third quarter of 2023, rising by 0.7% year-on-year (YoY), while in the second quarter of the year, the GDP expanded by 0.5% YoY.


Within the realm of goods-producing industries, the manufacturing sector saw a decline in the third quarter of 2023, with a 5.0% YoY contraction. The MTI attributed this sector's poor performance to output declines in all manufacturing clusters, except for the transport engineering cluster.


(Yoy: Year Over Year)


In contrast, the construction sector experienced robust growth, expanding by 6.0% YoY. This growth was driven by increased output in both the public and private construction sectors, according to the MTI's report.


Across the spectrum of services-producing industries, all exhibited year-on-year expansions. The leaders in this category were "accommodation & food services, real estate, administrative & support services," which grew by 4.7% YoY, followed by "information & communications, finance & insurance, and professional services" with a 1.5% YoY growth, and "wholesale & retail trade and transportation & storage" with a 0.6% YoY expansion.


On a quarterly basis, GDP increased by 1.0%, outpacing the 0.1% growth observed in the previous quarter.


On the contrary, the Monetary Authority of Singapore (MAS) has opted to maintain its interest rate for the second time this year, a decision influenced by moderated inflation and an economic growth performance that exceeded expectations.


According to MAS, Singapore's GDP growth is anticipated to gradually improve throughout 2024.


MAS's projections suggest that, despite the global economic landscape, the short-term prospects for Singapore's economy remain restrained, but a gradual improvement is expected in the second half of 2024. For 2023, MAS anticipates Singapore's GDP growth to fall within the lower half of the 0.5–1.5% forecast range. In 2024, growth is expected to align more closely with its potential rate, with the output gap retaining a slightly negative stance.


However, MAS cautioned that the global economic outlook remains uncertain, and the domestic recovery could potentially be weaker than anticipated.


Core inflation has also decelerated, and it is expected to experience a broad decline in the course of 2024. MAS projects core inflation to average between 2.5% and 3.5% for the year as a whole, with the exclusion of the impact of the GST rate increase in January, where core inflation is forecasted to range from 1.5% to 2.5%.


In light of these circumstances, MAS deems the current trajectory of the S$NEER policy band's appreciation to be adequately stringent. A sustained appreciation of this policy band is considered necessary to mitigate imported inflation and restrain domestic cost pressures, ensuring medium-term price stability, as per MAS.


Furthermore, MAS has announced a shift to a quarterly monetary policy statement schedule starting in 2024 as part of its ongoing efforts to enhance communication regarding monetary policy. The central bank will maintain its medium-term orientation in policy formulation to maintain low and stable inflation.


The next monetary policy statement is slated for release in late January 2024.


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