(Bloomberg) -- Singapore’s central bank expects the island’s economy to expand near the upper half of a 1%-to-3% range forecast for this year, even as geopolitical tensions and higher global interest rates continue to pose challenges.
Singapore’s gross domestic product growth “will come in closer to its potential rate of 2%-3%” in 2024, Monetary Authority of Singapore Managing Director Chia Der Jiun said at a briefing on Thursday to discuss the central bank’s annual report. Core inflation will stay on its disinflation path and reach around 2% in 2025, he said.
While the near-term view is supported by resilient global growth and slowing price gains, the outlook from next year is unclear. Rising tensions in the Middle East and Europe, and uncertainty around when the US Federal Reserve will start cutting interest rates carry implications for Singapore’s economic rebound, as they impact global capital flows and trade.
“Beyond this year, we remain vigilant to the risks to the global growth outlook,” Chia said. “High interest rates for longer could cause increasing strains on private sector spending, while uncertainties over the ongoing Middle East conflict and the risk of rising global protectionist policies could negatively impact confidence and investment and push up production costs.”
There are also risks associated with a Donald Trump presidency, which many fear could lead to renewed escalation of tariff wars.
“Most market participants are paying very close attention,” Chia said in response to a question on US election. If there is intensification and broadening of tariffs and trade restrictive measures, they could negatively impact global growth and inflation, he said.
The central bank’s latest view on growth comes days after the city-state reported that GDP expansion accelerated in the second quarter as manufacturing rebounded. The MAS, which previously said it anticipates the Fed will start easing borrowing costs in the third quarter, is due to review monetary policy settings later this month.
Singapore’s monetary authority, which uses the exchange rate as its main policy tool rather than interest rates, has maintained a restrictive policy stance to secure the disinflation path, Chia said. Keeping the appreciating path of the local dollar has helped the Singapore dollar strengthen by about 1.5% since the April policy decision and blunt imported inflation.
Core inflation averaged 3.1% year-on-year during April to May, down from 3.3% year-on-year in the first quarter of this year. The gauge, which peaked at around 5.4% in early 2023, is forecast to reach around 2% in 2025, barring further shocks, Chia said.
While the central bank has forecast both headline and core inflation to average between 2.5%-3.5% this year, he said the MAS will provide its latest assessment of inflation as well as growth at its quarterly decision later this month.
--With assistance from Chanyaporn Chanjaroen and Alex Chandler.
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