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The Monetary Authority of Singapore (MAS) did not adjust any of the three parameters of its SGD NEER policy band during its April 2024 review, in line with our expectations. The policy was decided against the backdrop of an uneven economic recovery and still elevated inflation.

Growth recovery amid lingering uncertainties

Singapore’s 1Q24 economic growth cooled sequentially to 0.1% QoQ sa from 4Q23’s 1.2% QoQ sa, based on advance estimates (AE) released alongside the MAS’s decision. This was the slowest QoQ print since early-2023. Yet, 1Q24 real GDP rose by 2.7% YoY from 4Q23’s 2.2% YoY, which were supported by favourable base effects. Overall, the data reflected an uneven growth recovery, in our view.

We continue to expect better growth prospects in 2024 vs a muted 2023. The growth recovery will be mainly supported by a gradual improvement in external-led sectors. While global economic data have surprised on the upside in early-2024, the outlook remains uncertain. Uncertainties come from the timing and magnitude of potential US Fed interest rate cuts, bumpy China economic conditions, and lingering geopolitical tensions that could still disrupt global supply chains. We maintain our 2024 real GDP growth forecast at 2.2% vs 2023’s 1.1%, which factors in improving sequential QoQ sa expansion, and ongoing uncertainties. Our 2024 growth forecast remains within the Ministry of Trade and Industry (MTI)’s 1-3% growth forecast range.

1Q24’s manufacturing sector performance was uneven. Factory activity dropped by 2.9% QoQ sa in 1Q24, easing from 4Q23’s 4.5% QoQ expansion. This saw 1Q24 YoY growth ease to 0.8% YoY from 4Q23’s 1.4% YoY. The data supports our view for positive but modest manufacturing growth in 2024 vs 2023’s full-year contraction. The expansion in leading indicators such as the manufacturing purchasing managers’ index (PMI) points to this direction. The headline manufacturing PMI expanded for the seventh straight month in March 2024 at 50.7, while the improvement in the electronics PMI to its best performance since mid-2022 is also an encouraging sign.

Singapore’s diversified services sector continued to be a key source of support to the overall economy, and we expect growth to hold up in 2024. Overall services growth picked up to 3.2% YoY in 1Q24 from 2.0% YoY in 4Q24. This was driven by sequential improvement to 1.2% QoQ sa from 0.3% QoQ sa over the same period. Yet, beneath the headline numbers, sequential QoQ sa growth was uneven across services clusters.

Lastly, the construction sector expanded for the 12^th straight quarter by 4.3% YoY in 1Q24, supported by public activities even though the private segment fell. Yet, construction’s 1Q24 seasonally adjusted real output stood at 93.1% of pre-pandemic 4Q19 levels. Continued robust growth will enable the sector to recuperate further. We expect construction growth to be supported by the robust project pipeline in both the public and private segments. Projects include new Build-To-Order flats, transport infrastructure such as the Cross Island MRT and Changi Airport Terminal 5, as well as private residential construction and the expansion of the two Integrated Resorts.

Bumpy core inflation moderation in 2024

Singapore’s core inflation (which excludes private transport and accommodation, but includes food and energy) has evolved broadly in line with MAS’s and our expectations in early-2024. Core inflation rose to a seven-month high of 3.6% YoY in February 2024, and averaged 3.4% YoY in January-February 2024, vs 4Q23’s 3.3% YoY. Still elevated core inflation reflected the pass-through of hikes in the goods and services tax (GST), carbon taxes, increase in public transport fares, and domestic cost pressures. We expect bumpy core inflation to cool, amid fading GST hike impact, moderating domestic labour cost pass-through, and contained imported inflation. Our 2024 average core inflation forecast of 3.1% forecast sits in line with the MAS’s 2.5–3.5%, and down from 2023’s 4.2% (see Singapore: Assessing core inflation for further details).

SGD NEER Policy settings appropriately restrictive with room to ease slightly later

The central bank (MAS) did not alter any of the three parameters – slope, mid-point, and the width – of the SGD NEER policy band at its meeting on April 12. The decision was consistent with its goal to ensure medium-term price stability amid the ongoing upside and downside risks to its inflation outlook. For e.g., the water price hike on April 1 is one of the factors keeping core inflation around current levels in the coming quarters. The SGD NEER’s setting is considered appropriately restrictive to lower core inflation down to 2% by early 2025, barring exogenous shocks.

We maintain our call for the central bank (MAS) to slightly reduce the appreciation pace of the SGD NEER policy band in July. The MAS held on to its 2024 forecasts for CPI-All Items inflation and core inflation at 2.5-3.5%, excluding the impact of January’s GST hike at 1.5-2.5%. The MAS projected core inflation declining discernibly in 4Q24 and into 2025 and assumed a further narrowing in the negative output gap in 2H24. There was also confidence that the improving economic growth over this year would be productivity-led and significantly dampen the increase in unit labour costs compared to recent years. As a price-taker economy, reducing restriction alongside the anticipated easing by global central banks in 2H24 would also signal confidence about restoring medium-term price stability.


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