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Singapore’s economy weathered the storm in 2023

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Visitors walk past a Gucci store at Marina Bay Sands in Singapore, 19 January 2023 (Photo: Reuters/Chen Lin).

In Brief

In 2023, trade-dependent economies like Singapore were affected by global economic pressures, resulting in slowed growth in export-led sectors, spikes in housing costs and a rise in core inflation. But recovery was seen in the second half of the year with expansion in the services and tourism sectors. Singapore also benefited from deepened economic cooperation with Malaysia and from being one of the first to reopen its borders after the COVID-19 pandemic.


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The global tightening of monetary policy in 2022 by central banks to curb excess liquidity and combat
surging inflation has stirred fears about a global economic slowdown. Estimates from the International
Monetary Fund forecast global growth falling to 2.9 per cent in 2023 from 3.4 per cent in 2022.

Highly trade-dependent economies like Singapore will be hardest hit by these monetary tightening measures. Singapore’s trade to GDP ratio was 336.86 per cent in 2022, an increase of 3.52 per cent from 2021.

Since October 2022, Singapore’s export-led manufacturing sector, which comprises approximately 20 to 25 per cent of its GDP, has remained subdued due to the decrease in global demand.

After a pandemic-fuelled boom, demand for consumer electronics has tapered off US–China trade disputes and other geopolitical uncertainties have also adversely impacted Singapore’s semiconductor industry.

The woes of the semiconductor industry have already taken a toll on the manufacturing sector overall, which shrank by 2.6 per cent year-on-year in the fourth quarter of 2022. But the drop in manufacturing output eased to 2.1 per cent year-on-year in September 2023 from an 11.6 per cent decline in August 2023.

One of the key reasons is demand for artificial intelligence, which has seen output in the electronics sector rise by 12.7 per cent year-on-year in September 2023 and 14.8 per cent in October 2023. The continuing US–China ‘Chip War’ has also seen Western chipmakers and suppliers moving to increase their production bases in Singapore. As Singapore’s purchasing manager’s index heads back into positive territory, this could indicate a more positive outlook for the sector heading into 2024.

The banking and finance sector has a total asset size of approximately US$2 trillion and serves a critical role in financing the growth of trade and infrastructure. But increases in interest rates have made financing loans more expensive and this has drastically increased the costs of building new homes. Rising building costs and a limited supply of new housing due to building restrictions during the pandemic have led to spikes in the costs of new homes and rental prices.

Skyrocketing home prices and rents were further fuelled by surging demand due to the opening of the economy and the return of foreign human capital to Singapore. As we head into 2024, the increase in housing supply is easing bottlenecks, stabilising rental prices and slowing price increases for new homes.

The financial sector had also been dealing with an ongoing anti-money laundering operation that has led to 10 arrests and uncovered more than $2.8 billion Singapore dollars (US$2.1 billion) in assets and cash linked to gambling syndicates overseas. Going forward, financial regulators will be tightening measures to curb the flow of illicit funds in the city-state, while also mitigating the rise of financial cyber fraud.

On a brighter note, having a first-mover advantage opening its borders post COVID-19, Singapore is benefitting from the resumption of air travel, tourism and related activities. In 2023, international visitor arrivals are expected to reach 12 to 14 million, two-thirds to three-quarters of their 2019 level. By the end of 2023, travel and tourism revenue is projected to reach US$3.27 billion.

But the risk of escalation in the wars in Ukraine and in the Middle East as well as geopolitical tensions between China and the United States could disrupt travel plans and global supply chains, causing steep increases in energy and commodity prices. Given Singapore’s role as a regional transport and logistics hub, it would be severely impacted.

In line with global trends, inflation remained elevated for Singapore in the first half of 2023, but there was some easing by June. But core inflation, which is a better gauge of the price increases most Singapore households face, is expected to edge up in the first quarter of 2024. This reflects the GST hike due from 8 to 9 per cent on 1 January 2024, as well as increases in the costs of water, electricity and public transport.

To support higher living costs, the Ministry of Finance announced a S$1.1 billion (US$825 million) Cost-of-Living Support Package on 28 September 2023.

Singapore’s economy experienced an unexpected expansion in the second quarter of 2023 and successfully averted a looming technical recession. According to the Ministry of Trade and Industry, Singapore’s GDP rose by 0.7 per cent on a year-on-year basis in the second quarter of 2023. On a quarter-on-quarter seasonally adjusted basis, the economy expanded by 0.3 per cent, reflecting a turnaround from the 0.4 per cent contraction in the first quarter of 2023.

The accommodation industry saw robust growth due to the recovery in international visitor arrivals. Singapore’s event-hosting profile was boosted by the yearly Formula 1 Grand Prix and Music Festival.

Economic relations between Singapore and Malaysia also received a boost when both countries signed bilateral agreements to deepen cooperation in the digital economy, green economy and cybersecurity during Malaysian Prime Minister Anwar Ibrahim’s visit to Singapore in January 2023.

Later in the year at the 10th Singapore–Malaysia Leaders’ Retreat, both leaders highlighted plans to accelerate cross-border economic relations through the creation of the Johor–Singapore special economic zone.

The Singapore economy avoided an outright recession as the services sector and travel industry offset the slump in manufacturing and the weaker financial sector with above-trend growth after the end of COVID-19 curbs.

Faizal Bin Yahya is Senior Research Fellow in the Institute of Policy Studies at the Lee Kuan Yew School of Public Policy, National University of Singapore.

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