- This is reflected in our exchange market pressure index.
- The pressures are backed by robust FDI inflows and a high current account surplus.
- We forecast continued robust current account surpluses of 18+% of GDP in 2024 and 2025.
- While the primary income deficit has widened, it reflects larger foreign investments in Singapore.
- The services trade surplus has room to expand further.
Below is a summary; for full report and detailed charts, please download the PDF
Singapore has experienced sustained currency appreciation pressures in recent years, comparable to the period preceding the 2008/09 Global Financial Crisis (GFC). These pressures are evident in our estimated exchange market pressure index (EMPI), which incorporates changes in the Singapore nominal effective exchange rate (SGD NEER) and adjusted foreign reserves.
While the Monetary Authority of Singapore (MAS) implemented five rounds of monetary policy tightening between October 2021 and October 2022, and maintained an unchanged policy stance until its last decision in July 2024, resulting in a stronger SGD NEER, the currency appreciation pressures exceeded the actual rise of the SGD NEER. To manage the currency strength beyond its chosen policy parameters (slope of policy band, width of policy, and level at which policy band is centred), the MAS absorbed the excess through a significant accumulation of official foreign reserves (OFR).
Current account surplus supports SGD strength
The SGD’s appreciation pressures have been driven by robust foreign direct investment inflows (see Singapore: Implications of foreign capital inflows for a detailed discussion), and resilient export earning inflows, reflected in its current account surplus. We expect these positive forces to persist as long as Singapore maintains its exceptional economic and business competitiveness in the medium-term.
Focussing on external fundamentals and current account dynamics, Singapore has consistently ranked among the top 10 globally in terms of economies running current account surpluses. For an island nation with no natural resources, it is impressive that Singapore has built upon its export capabilities, roughly tripling its average current account surplus to SGD113bn (USD83bn) in 2020-23 from SGD42bn (USD26bn) in 2000-09. When scaled against GDP, the average current account surplus was high at 18.5% in 2020-23 and 19.3% in 2000-09. We forecast continued robust current account surplus of 18.7% and 18.5% of GDP in 2024 and 2025, respectively.
However, Singapore’s current account composition has shifted in two areas. First, the primary income deficit widened to an average of 16% of GDP in 2020-23, from smaller deficits previously. We think the wider primary income deficit is not concerning. Second, the services trade balance turned into an average surplus of 6.2% of GDP in 2020-23, following deficits in 2010-19 and 2000-09. We see room for services trade to expand further in the coming years.
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