Singapore does not expect a recession or stagflation in 2023, but significant headwinds remain: MTI

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Singapore, being a small and open economy, cannot be insulated from increasingly challenging developments in the external environment, he added.

In particular, the country has experienced a significant rise in inflation on the back of rising food and energy costs.

Latest data showed headline inflation rose to 5.6 per cent in May, up from 5.4 per cent in April and hitting its highest reading since November 2011 when headline inflation reached 5.7 per cent.

Core inflation, which excludes private transport and accommodation costs, went up from 3.3 per cent in April to 3.6 per cent in May – the index’s peak since December 2008 when core inflation came in at 4.2 per cent.

“Inflation is likely to pick up further in the coming months but should start to moderate towards the end of the year if external inflationary pressures recede,” said Mr Tan.

Official estimates for full-year inflation in 2022 remain at a range of 4.5 to 5.5 per cent for headline inflation, while core inflation is expected to come in between 2.5 and 3.5 per cent.

“Notwithstanding rising inflation, economic activity in Singapore has remained resilient thus far,” Mr Tan said, citing how the economy grew by 3.7 per cent year-on-year in the first quarter.

Non-oil domestic exports and industrial production also remained “healthy” in April and May, up by 9.3 per cent and 10 per cent year-on-year respectively.

Likewise, retail and food and beverage sales volumes increased by 8.4 per cent and 6.9 per cent year-on-year respectively in April, reflecting a continued recovery from the pandemic.

These point to “firm” consumption spending, said Mr Tan, noting that the high inflation readings in recent months “have not led to any significant cutbacks, at least in household consumption”.

“In fact, spending on food services, as well as wearing apparel and footwear, has seen a discernible step up relative to (the first quarter of) 2022 in the month of April following the removal of mobility restrictions,” he added in response to a supplementary question from MP Desmond Choo (PAP-Tampines).

For the rest of the year, Mr Tan said the recovery in international travel and domestic demand amid the easing of pandemic restrictions will help to mitigate some of the weaker external demand.

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