By Fabiana Negrin Ochoa and Amanda Lee
SINGAPORE-- Singapore's economy is expected to strengthen this year, but faces challenges sustaining growth as global and domestic cost pressures rise, said the city-state's central bank.
Global growth is expected to remain steady in 2024, despite drags from past monetary policy tightening and less supportive fiscal policy, the Monetary Authority of Singapore said in its macroeconomic review on Friday. That underpins its view that the Southeast Asian financial hub will reach its growth targets for the year.
MAS projects global economic growth at 3.0% in 2024, versus 3.3% last year. It reiterated its expectation for Singapore's GDP growth of 1%-3%, compared with 1.1% in 2023.
The path ahead is not without obstacles.
An aggressive run of rate hikes by major central banks in response to a spike in inflation after the pandemic has weighed on global demand, hurting economies that lean heavily on trade, like Singapore's. Policymakers have acted to rein in inflation, but in many countries price pressures are proving sticky and interest rates remain high.
"Persistent inflation leading to a delay in policy rate cuts is a significant risk," the MAS said.
The pace of disinflation in Singapore's major trading partners has slowed and progress is bumpy, the central bank said.
MAS thinks growth could be driven by the global electronics upturn, which is broadening beyond semiconductors and is fuelling growth in Asia's emerging markets. Electronics are a key export for Singapore, which stands to gain from the artificial intelligence boom driving demand for chips.
MAS expects the local economy will manage to close its "negative output gap" by year's end. The term indicates economic output below full capacity, signaling a lack of demand for goods and services, and sluggish growth.
The Singapore central bank retained the inflation outlook from its policy meeting earlier this month. It stays on alert for risks that could destabilize prices, like geopolitical tensions.
Singapore's loss of momentum in the first quarter of the year dimmed its outlook slightly, but many economists say it is still on track for moderate growth.
MAS said it thinks that both the pullback in manufacturing and the boost in tourism-related industries from big revenue-generating acts like Taylor Swift during the quarter will fade. It pegs trade-related and modern services sectors as key engines of growth for the rest of 2024, propelled by the global electronics recovery and projected peaking of global policy interest rates.
Longer term, MAS warned that Singapore needs to face the challenge of continuing to grow despite rising costs.
As the economy has gone from strength to strength, improvements in labor productivity have partially mitigated the rise in wage costs, it said.
This will become increasingly tough, MAS said, as the global economy faces cost headwinds from increasingly supply-constrained growth and ageing populations. Prices of Singapore's imports will likely rise, as will local labor costs, especially for lower-productivity sectors.
To sustain its momentum and competitive edge on the world stage, Singapore needs to adapt, MAS said. Technological improvements and productivity growth will play key roles.
"Singapore should look beyond simply being cost competitive," it said.
Write to Fabiana Negrin Ochoa and Amanda Lee at fabiana.negrinochoa@wsj.com and amanda.lee@wsj.com
(END) Dow Jones Newswires
04-26-24 0016ET
