Singapore avoids recession as economy grows in third quarter, central bank tightens policy

Buildings in the business district in Singapore. Singapore’s GDP for the third quarter beat estimates, and its central bank tightened policy as expected.
Ore Huiying | Bloomberg | Getty Images

Singapore’s economy grew more than expected in the third quarter from the same period last year, according to advance estimates released by the government on Friday.

Separately, the country’s central bank tightened monetary policy for the fifth time in the past year, in line with expectations.

Gross domestic product in the July-to-September quarter came in at 4.4%, much higher than the 3.4% predicted by analysts in a Reuters poll, and in line with growth in the second quarter.

The Southeast Asian country avoided a technical recession, with quarterly GDP growth coming in a 1.5% on a seasonally adjusted basis, after a 0.2% contraction in the second quarter from the first quarter.

The Ministry of Trade and Industry in August narrowed Singapore’s GDP forecast for 2022 to 3% to 4%, compared to an its previous forecast of 3% to 5%.

Singapore tightens policy

Meanwhile, the Monetary Authority of Singapore tightened policy in a widely expected move, as rising costs continue to weigh on the economy.

The central bank said it will re-center the mid-point of its exchange rate policy band, known as the Singapore dollar Nominal Effective Exchange Rate, S$NEER.

Singapore controls policy through its exchange rate rather than interest rates, and can also adjust the slope and width of the band. It manages the strength or weakness of the Singapore dollar against a basket of currencies of its main trading partners.

“Core inflation will stay elevated over the next few quarters, as imported inflation remains significant and a tight labor market supports strong wage increases,” the MAS said in a statement.

The Singapore dollar

Goods and services tax hike

On the planned goods and services tax (GST) hike slated for January 2023 and 2024, the central bank said it “will result in a one-off step-up in the price level,” though its impact on inflation “should be transitory.”

The MAS said that excluding the effects of the tax hike, it expects Singapore’s core inflation to remain above trend at between 2.5% to 3.5% and headline inflation at between 4.5% to 5.5%. In August, core inflation rose to 5.1% while headline inflation was at 7.5%.

Selena Ling, chief economist at OCBC Bank, said factors other than the GST hike will play a bigger role in driving inflation.

The central bank “paid some reference to the GST hike, but also indicated there would be other structural factors underpinning the inflation story,” Ling said on CNBC’s “Squawk Box Asia.”

“For the rest of 2023, it will come down to external prices — such as energy, natural gas, and on the domestic front,” she said, pointing to a tightened labor market and increase in wages.

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