Given continued external economic headwinds as well as uncertainties, it was prudent for the Ministry of Trade and Industry (MTI) to clarify that Singapore’s GDP growth is expected to be at the lower end of its forecast of 3 to 5% – that is, 3 to 4 percent – this year. Since its forecast last November, new downside risks have emerged that could weigh on the economy. The first is Russia’s war against Ukraine, which began in February and has since intensified inflationary pressures due to rising food and fuel prices and blocked transit routes. Second, the continued lockdowns in China under its zero-Covid-19 policy in response to the spread of infections of the Omicron variant of Covid-19, which has caused port closures, breakdowns in supply chains and an economic downturn. And third, a cycle of aggressive rate hikes and quantitative tightening by the US Federal Reserve in response to rising inflation threatens to slow global growth and disrupt financial markets. MTI also flagged the risks of new, more virulent strains of Covid-19 that may yet emerge.
Each of these developments is clouded by uncertainty as to its duration. Taken together, they make a compelling case for more circumspect economic forecasts, especially for an open economy like Singapore’s. Certainly, some parts of the economy should still do well according to MTI, including the electronics sector driven by strong demand for semiconductors, aviation and travel-related industries, professional services as well as consumer-facing sectors such as food and beverage and retail, which are benefiting from the reopening of the economy.