Singapore economy to expand 1% to 3% in 2024; 2023 growth forecast at 1% on weak exports

SINGAPORE – Singapore’s economic growth will come in at around 1 per cent in 2023 amid subdued external demand, which will keep manufacturing and trade-related sectors weak, the Ministry of Trade and Industry (MTI) said on Nov 22.

For 2024, the economy is expected to grow between 1 per cent and 3 per cent, barring the materialisation of downside risks, MTI said in its latest economic survey report.

Its 2023 growth forecast was narrowed from the range of 0.5 per cent to 1.5 per cent announced in August and is much lower than the prediction of 0.5 per cent to 2.5 per cent made at the start of this year.

MTI said that gross domestic product grew 1.1 per cent year on year in the third quarter, a faster pace than the 0.5 per cent in the second quarter and 0.4 per cent in the first three months of 2023.

On a quarter-on-quarter seasonally adjusted basis, the economy grew 1.4 per cent, accelerating from the 0.1 per cent expansion in the second quarter.

Growth in the July-to-August period was aided by the ongoing recovery in air travel and inbound tourism that has buoyed sectors such as air transport and accommodation. Meanwhile, resilient labour market conditions continue to lend support to consumer-facing sectors like retail trade and food and beverage services.

Still, the cumulative effects of higher interest rates and a slower-than-expected Chinese economy has kept overall growth depressed.

However, looking ahead to 2024, GDP growth rates in major economies such as the United States and the euro zone are projected to slow further in the first half of 2024 due to continued tight financial conditions, before picking up gradually in the second half.

This, alongside a normalisation of inventory levels, is likely to support a turnaround in global manufacturing activity over the course of the year. In particular, global electronics demand is projected to recover, which will bolster the growth of most regional economies, MTI said.

“Against this backdrop, the growth prospects of the manufacturing and trade-related sectors in Singapore, such as electronics, precision engineering and wholesale trade, are expected to improve in tandem with the turnaround in global electronics demand,” said Mr Gabriel Lim, MTI’s Permanent Secretary for Policy.

Meanwhile, the finance and insurance sector is forecast to post a modest recovery as global interest rates moderate, he added.

However, Mr Lim warned that significant downside risks in the global economy remain.

Core inflation in advanced economies – which exclude volatile food and energy costs – could induce central banks to maintain current high interest rates for longer. Also, an escalation or widening of the Israel-Hamas conflict or the war in Ukraine could lead to renewed supply disruptions and commodity price shocks.

The confluence of these factors could weigh on both business and consumer sentiments along with demand, leading to a slowdown in global growth and trade, he said.

Mr Edward Robinson, chief economist at the Monetary Authority of Singapore, said the central bank maintains its forecast for inflation for 2024 even as economic growth is likely to improve.

He said Singapore’s core inflation, which excludes accommodation and private transport costs, is projected to come in at around 4 per cent, unchanged from last year. For 2024, the forecast remains at the 2.5 per cent to 3.5 per cent range.

Mr Robinson also reiterated that MAS’s current policy stance remains appropriate.

In the third quarter of 2023, the manufacturing sector shrank by 4.6 per cent year on year, compared with the 7.6 per cent contraction in the previous quarter. All clusters within the sector contracted except for transport engineering.

The construction sector grew 6.3 per cent, extending the 7.7 per cent expansion in the second quarter, as both public and private sector construction output rose.

Growth in the information and communications sector eased to 5.6 per cent, from 7 per cent in the second quarter. The real estate sector grew 3.4 per cent, slowing from the 12.1 per cent expansion in the second quarter.

Enterprise Singapore, meanwhile, lowered its export forecasts for this year, in its third-quarter trade performance report, also released on Nov 22.

It now expects non-oil domestic exports (Nodx) to shrink by 12 per cent to 12.5 per cent in 2023, compared with August’s forecast of a 9 per cent to 10 per cent contraction.

Total merchandise trade is forecast to fall by around 10 per cent, compared with August’s forecast of a 9 per cent to 10 per cent contraction.

For 2024, the agency predicted a modest recovery, with total trade growing 4 per cent to 6 per cent on the likelihood of higher oil prices, which will support oil trade.

Nodx was projected to rise in 2024 by 2 per cent to 4 per cent in tandem with the expected turnaround in global electronics demand.