Oral reply to PQs on Singapore’s economic outlook

Questions

Ms Cheng Li Hui: To ask the Minister for Trade and Industry (a) what is the Ministry’s assessment of the likelihood of a recession in Singapore within the next year; and (b) in the event of a recession, how is the Government prepared to assist businesses and Singaporeans.

Ms Cheng Li Hui: To ask the Minister for Trade and Industry (a) whether the Government forecasts stagflation occurring in Singapore in the next few years; and (b) if so, what are the measures considered to deal with stagflation and its impact on businesses and livelihoods in Singapore.

Mr Desmond Choo: To ask the Minister for Trade and Industry (a) how has inflation affected consumer demand and business sentiments; and (b) in what ways will Singapore's economic performance be affected by global and domestic inflation.

Oral Answer (to be attributed to Minister of State for Trade and Industry Alvin Tan)

1. Mr Speaker, may I have your permission to take Oral Questions 21 and 22 by Miss Cheng Li Hui, Oral Question 23 by Mr Desmond Choo, as well as Written Questions 17 and 18 in today’s Order Paper by Mr Shawn Huang and Mr Desmond Choo respectively, together?

2. The global economic environment has become increasingly challenging. The Russia-Ukraine conflict is now entering its fifth month, while economies such as China continue to grapple with the COVID-19 pandemic. Protracted global supply disruptions, due in large part to the conflict and the pandemic, have fuelled inflationary pressures globally, especially through their impact on energy and food commodity prices.

3. As a small, open economy, Singapore cannot be insulated from these external developments. In particular, we have seen a significant rise in inflation. MAS Core Inflation picked up to 3.6% year-on-year in May, from 3.3% in April and 2.5% in the first quarter of the year. CPI-All Items inflation, which includes private transport and accommodation costs, rose to 5.6% year-on-year in May, from 5.4% in April and 4.6% in the first quarter.

4. Inflation is likely to pick up further in the coming months but should start to moderate towards the end of the year if external inflationary pressures recede. For the year as a whole, MAS Core Inflation is expected to average 2.5% to 3.5%, while CPI-All Items inflation is projected to average 4.5% to 5.5%.

5. Mr Desmond Choo asked whether inflation has affected consumer demand and businesses in Singapore. Notwithstanding rising inflation, economic activity in Singapore has remained resilient thus far. In the first quarter of 2022, Singapore’s GDP grew by 3.7% on a year-on-year basis. Non-oil domestic exports and industrial production remained healthy in April and May, rising by 9.3% and 10.0% year-on-year respectively over this period. Similarly, retail and food & beverage sales volumes increased by 8.4% and 6.9% year-on-year respectively in April, reflecting a continued recovery from the pandemic.

6. For the rest of the year, the recovery in international travel and domestic demand with the lifting of COVID-19 restrictions will help to mitigate some of the weaker external demand.

7. Miss Cheng Li Hui and Mr Shawn Huang asked whether Singapore is likely to see a recession or stagflation within the year or in the next few years. Overall, MTI expects the Singapore economy to expand by 3.0% to 5.0% in 2022, with growth likely to come in at the lower half of the forecast range. We expect growth to moderate further next year. At this stage, we do not expect a recession or stagflation in 2023. Nonetheless, risks in the global economy remain significant. These include further escalations in the Russia-Ukraine conflict, more severe global supply disruptions, risks to financial market stability if monetary policy tightening in advanced economies is faster than expected, and the trajectory of the COVID-19 pandemic.

8. Mr Desmond Choo also asked how rising global interest rates will affect lending and mortgage rates in Singapore. To tame rising inflation, the central banks of many economies have started to raise interest rates. With higher global interest rates, Singapore’s domestic interbank interest rates have also risen in tandem, although the extent of the increase has been moderated by the strengthening of the Singapore Dollar. The increase in domestic interbank interest rates has in turn led to a rise in lending and mortgage rates in Singapore. As global interest rates could increase further, businesses and households should bear in mind the rising cost of borrowing when making borrowing decisions.

9. The Government understands businesses’ and Singaporeans’ concerns. The Government plans to address the challenging environment in three ways. First, we will maintain a stable macroeconomic environment so that businesses can make investment and operational decisions with confidence. The Monetary Authority of Singapore has tightened monetary policy three times since October last year. The appreciation of the Singapore Dollar will help to temper imported inflation. Second, the $1.5 billion support package announced on 21 June will provide immediate and targeted relief to lower income and vulnerable Singaporeans, who are disproportionately affected by higher prices. The Deputy Prime Minister and Minister for Finance will be elaborating on the support measures later. Finally, MTI will continue to attract investments and foster new growth engines. Strong job creation and wage growth are the best ways to combat inflation.

10. To sum up, our economy is facing significant headwinds, including a global economic slowdown and strong external inflationary pressures. However, I am confident that by working closely with businesses and Singaporeans, we will be able to weather this storm, as we did with the COVID-19 pandemic.