Singapore's gross domestic product grew slightly lower than initially estimated in the last quarter of 2022, according to the country's officials.
The Singaporean Ministry of Trade and Industry said Monday that the country's year-over-year GDP grew by 2.1 percent in the previous quarter, lower than the official estimate of 2.2 percent and expert estimates of 2.3 percent.
The government said a decline in construction and service sectors contributed to the lower growth. Overall in 2022, Singapore saw a 3.6 percent growth in GDP, against the previous estimate of 3.8 percent.
The country still maintained its annual growth forecast for 2023 at the range of 0.5 to 2.5 percent. Singapore's permanent secretary for trade and industry, Gabriel Lim, said the easing of COVID-19 policy in China improved the country's economic outlook.
"Singapore's external demand outlook for 2023 has improved slightly. In particular, growth in China is projected to pick up in tandem with the faster-than-expected easing of its COVID-19 restrictions," Lim said.
On the other hand, Singapore will still face some challenges due to the weakening economy of the U.S. and Eurozone. Lim said the macroeconomic conditions in those regions would reduce their investment and consumption spending in Singapore.
Analysts predicted that China's loosening of zero-COVID restrictions would positively impact several services sub-sectors in Singapore. However, Singapore is still expected to see a decline in growth in the electronics manufacturing sector in the short term.
Singapore lifted most of its pandemic restrictions in April last year, allowing international events to be hosted in the country to boost tourism and investment. Analysts have predicted that Singapore's tourism will return to its pre-pandemic level next year.
Inflation in Singapore
Although inflation has eased in Singapore over the past few months, the rate remains around five percent. The Monetary Authority of Singapore (MAS) — the country's central bank — raised the benchmark interest rates several times last year to tame inflation.
Singapore's benchmark rate currently sits at 3.25 percent, and the next rate-setting meeting is due in April. MAS deputy managing director Edward Robinson said maintaining the current monetary policy was "appropriate."
"One of the important sources of inflation that we will be monitoring and analyzing quite carefully through this year is related to the labor market conditions both overseas in our key export markets, as well as domestically," Robinson added.
Based on quarterly comparisons, headline and core inflation in Singapore has shown declining momentum, in line with government expectations.
"Inflation is likely to subside gradually in 2H23, but likely in fits and starts amid the volatile commodity prices, including food and energy."
Selena Ling, Head of Treasury Research and Strategy at OCBC
However, OCBC head of treasury research and strategy Selena Ling warned that the downward trend of inflation would likely be in "fits and starts" due to unstable commodity prices. Ling added that if core inflation remained "sticky," the central bank could further tighten its monetary policy.
Increased sales tax
The government raised its sales tax from seven percent to eight percent starting January 1 to boost revenue due to increased healthcare spending for its aging population. Singapore plans to further raise the sales tax to nine percent by 2024.
The Singaporean government has also designed a method to reduce the negative impacts of increased sales tax on its lower-income groups, which typically see the lowest wage increase while dealing with a significant leap in household spending.
The island country has allocated an additional $1.05 billion to manage the impact of sales tax hikes — it already had $4.95 billion allocated for this purpose. Around 2.9 million low-income adults will receive cash payouts from the fund starting from December 2022 to December 2027.
Analysts, however, warned that these policies would hit the middle-income class the hardest because they were not eligible for government payouts. In addition, businesses selling rate-sensitive items are also vulnerable to the negative impacts of the tax increase.