Stars are aligning for Singapore growth

Singapore’s growth prospects are getting brighter. After two years of sub-par performance forecast growth in the country’s growth domestic product is expected to reach 3 per cent in 2017.

Furthermore, conditions for further acceleration in growth over 2018 appear to be falling in place. As a result, ANZ Research has upgraded its 2018 GDP growth forecast for Singapore to 4 per cent.

Global growth has already boosted Singapore’s externally oriented sectors and this is expected to carry over into next year. While there could be some moderation in the global IT cycle, a long-awaited pick-up in business investment in the G3 economies will sustain Singapore’s export momentum. 

" ANZ Research has upgraded its 2018 GDP growth forecast for Singapore to 4 per cent."

Despite the stronger growth outlook, ANZ still sees both headline and core inflation rising but staying below their long-term average levels.

The Monetary Authority of Singapore (MAS) is expected to exit its neutral policy stance at the October 2018 meeting, leaving the Singapore dollar to appreciate to an expected level of $US1.35 by the end of 2018. 


Economic restructuring, the fall in oil prices in 2014 which impacted on Singapore’s oil and gas sector, policy-induced weakness in the residential property market, and the regional trade recession are all factors that contributed to a growth slowdown in recent years.

Although growth has recovered in 2017, some headwinds are still apparent. For example, residential investment is set to subtract from growth for the fourth consecutive year in 2017.

Other investments have also been weak. Domestic demand has not shown much improvement so far this year in Singapore.

Weakness in both the property and labour markets has weighed on household consumption. Investment contracted at its fastest pace since 2003, which offset some of the recovery in exports.

However, the sharp rise in en-bloc sale transactions since mid-2017 suggests residential constructive activity will start to pick up next year and add to growth after subtracting from it since 2014.

Residential property prices, which posted their first quarterly increase in the third quarter in almost four years, are set to continue rising, helping to lift household consumption. ANZ Research expects the export recovery to also start feeding through into business investment as well.

Other factors are also starting to turn more positive for the growth outlook. Overall, we see the conditions for a further acceleration in growth to be falling in place.

External charge

The improving global growth backdrop has already seen a recovery in Singapore’s exports. With global growth continuing to strengthen and broaden, ANZ sees scope for Singapore’s externally oriented sectors to sustain their momentum into next year.

The robust demand stemming from the global IT cycle is expected to moderate somewhat in 2018, but still stay strong. ANZ Research sees a rise in business investment in the G3 economies to offset any moderation in IT-related exports in 2018.

Singapore’s headline CPI inflation has been below its long-term average of around 2 per cent since mid-2014, even dipping into negative territory between November 2014 and October 2016. 

MAS: Monitory Authority of Singapore S$NEER: Singapore dollar nominal effective exchange rate

Stronger GDP growth means the output gap will turn increasingly positive next year. Ordinarily, this would start to see inflation pressures building. However, the labour market, which historically has been a key driver of core inflation, has been weak through most of 2017.

Even as employment growth improves in 2018, it will take time for the labour market slack to be absorbed. In addition, the recovery this year has been driven mainly by strong productivity growth, resulting in declining unit labour costs for businesses. This will help keep inflation pressures in check even if wage growth rises.


April is likely to be too early for a move on rates as the MAS would want to see further evidence the economic recovery is broadening. Low inflation over the first half of 2018 allows the MAS to be patient.

 Although the inflation outlook is a key factor in the central bank’s deliberations, a neutral policy stance is typically adopted following a substantial tightening in financial conditions.

A sustained easing in financial conditions has been a signal that the MAS could be prepared to exit their neutral stance. ANZ Research believes ideal conditions will be in place by October next year.

Khoon Goh is Head of Asia Research at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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