Amid concerns over persistent inflation, disruptions from Russia’s invasion of Ukraine, and China’s struggle to contain Covid-19 outbreaks with its zero-infection approach, trade officials also lowered their expectations for full-year gross domestic product growth to between 3% and 4%, narrowing the previous range of 3% to 5%.
Escalating tensions between China and self-ruled Taiwan, which Beijing regards as a renegade province, have only sparked further worries, noted Gabriel Lim, permanent secretary for Singapore’s trade and industry ministry.
“Both China and Taiwan are important trading partners for Singapore – China is number one and I think Taiwan’s number four,” he told an online briefing. “Should there be any deterioration in the situation there, I think it will certainly affect not just the overall economic flows into Singapore but also the rest of the world, especially in key areas like semiconductors, electronics and so on.”
By sector, Singapore reported that manufacturing grew 5.7% on the year in the April-June period – slower than the 8% growth pegged in the preliminary numbers. This weighed down overall GDP expansion for the quarter.
The construction industry grew 3.3% during the same period. The services segment covering areas like arts, entertainment and recreation expanded 5.7%, as Singapore eased Covid restrictions in the first half of the year – both on domestic activity and international travel.
However, the Russia-Ukraine war has dimmed the growth outlook for Asian economies, including the city-state. Trade officials noted on Thursday that the conflict could continue to worsen global supply disruptions and exacerbate inflationary pressures through higher food and energy prices.
In July, the central bank – the Monetary Authority of Singapore – attempted to counter inflation by tightening its monetary policy in its second out-of-cycle move this year, following one in January. Instead of interest rates, the city-state’s monetary policy is based on exchange rates, letting the local dollar rise or fall against the currencies of major trade partners.
The MAS usually holds two scheduled policy meetings a year, in April and October. July’s move was the fourth round of tightening since October overall. Edward Robinson, deputy managing director for economic policy and chief economist at the central bank, said at Thursday’s briefing that the current policy stance remains “appropriate”.
In televised remarks on Monday, as Singapore marked its independence, Prime Minister Lee Hsien Loong warned of a gathering geopolitical storm.
He cited “profound implications” of the Ukraine war for the world and the city-state, stressing that the conflict in Europe would affect regional security in the Asia-Pacific, and that it has already strained China’s ties with the US and its partners in the region.
“US-China relations are worsening, with intractable issues, deep suspicions, and limited engagement between them,” Lee said.
“The basic reality is that international economic conditions have shifted,” he said. “The world is not likely to return anytime soon to the low inflation levels and interest rates that we have enjoyed in recent decades.”