Singapore’s economy finished 2017 on a solid footing, allowing more room for policy makers to consider raising taxes and tightening monetary policy this year.
Growth was faster than economists predicted last quarter, resulting in the strongest full-year expansion in three years, according to preliminary figures released on Tuesday. The data also confirmed the recovery is broadening out, with services industries, such as finance and transport, among the main drivers of growth in the fourth quarter.
The solid data are giving credence to economist forecasts for higher taxes when the government releases its budget on Feb. 19, with one option being an increase in the goods and services tax. The Monetary Authority of Singapore may also shift to a tightening stance after opening the door to a possible move in its October policy meeting.
“Probably at some stage this year MAS will take the foot off the accelerator and shift from neutral to probably a more hawkish setting,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore.
HIGHLIGHTS OF GDP REPORT
- Gross domestic product rose at a seasonally adjusted and annualized rate of 2.8 percent in the fourth quarter from the previous three months; median estimate of eight economists in a Bloomberg survey was for a 1.6 percent gain
- GDP climbed 3.1 percent from a year earlier, versus median estimate of 2.6 percent
- Full-year 2017 growth was 3.5 percent, the best performance since 2014
This year should be “a little bit more benign for growth but possibly more choppy for financial markets” given the potential domestic and global policy changes, including leadership transitions at major central banks, Ling said.
Singapore, among Asia’s most export-reliant economies, has benefited from a global trade recovery that’s boosted demand for its electronics goods. The government and the central bank forecast GDP growth of 1.5 to 3.5 percent this year.
A stabilizing labor market and recharged property market is setting up a “much more stable environment” in 2018, said Edward Lee, chief economist for Southeast Asia at Standard Chartered Plc in Singapore.
The services sector, which accounts for about two-thirds of economy, grew 7.5 percent in the fourth quarter from the prior three months, while manufacturing contracted 11.5 percent and construction fell 3.6 percent.
“We hope to see continued improvement in services growth momentum,” said Irvin Seah, an economist at DBS Group Holdings Ltd., Singapore’s biggest lender. He expects some moderation this year with growth coming in at 3 percent.
What Our Economists Say:
Singapore’s below-trend (year on year) expansion in 4Q provides scope for the Monetary Authority of Singapore to maintain a neutral currency stance in April. Still, the central bank could re-center the policy band higher, should SGDNEER continue to trade on the strong side.
— Tamara Henderson, Bloomberg Economics
OCBC economists see growth at the upper end of a 2-to-4 percent range in 2018, given that gains have begun broadening out. The labor market, which showed softness in the first half of last year, will also be a swing factor for growth, said Ling.