S’pore economy loses growth momentum in Q2; MAS tightens policy further in surprise move

SINGAPORE – The Singapore economy grew slower than expected in the second quarter this year, indicating weakening global and domestic demand for goods and service amid surging inflation.

Meanwhile, the Monetary Authority of Singapore (MAS) further tightened its policy stance, making room for a stronger Singapore dollar to douse the impact of rising global prices.

The economy grew by 4.8 per cent year on year in the second quarter, led by the manufacturing sector, said the Ministry of Trade and Industry (MTI) in flash estimates on Thursday (July 14).

The pace of growth was slower than the 5.4 per cent economists had forecast in a Bloomberg poll.

Compared to the first quarter and on a seasonally adjusted basis, the economy posted zero growth in the second quarter.

MTI upgraded first-quarter year-on-year growth to 4 per cent, from an earlier estimate of 3.7 per cent, backed by a relatively better performance by both the construction and service sectors.

MTI in April had maintained its 3 per cent to 5 per cent economic growth forecast for 2022, but warned that the pace of expansion will likely come in at the lower half of the forecast range because of the impact of the war in Ukraine and China’s strict Covid-19 lockdowns.

The supply chain disruptions because of the war and the lockdowns have boosted inflation worldwide.

US inflation hit a four-decade high last month, above market expectations, boosting bets of a 100-basis point interest rate hike by the Federal Reserve later this month.

MAS said it will re-centre the mid-point of the trade-weighted Singapore dollar policy band up to its prevailing level that has risen in recent weeks. There will be no change to the slope and width of the band, the central bank said in a statement.

“This policy move, building on previous tightening moves, should help slow the momentum of inflation and ensure medium-term price stability,” it added.

However, MAS said that in the near term, core inflation is expected to rise above 4 per cent, higher than its 2.5 per cent to 3.5 per cent forecast for this year.

“Although it should ease in the fourth quarter of 2022, there is considerable uncertainty over the extent of the decline,” it added.

This is the fourth tightening move by MAS since October 2021 and the second time since January the central bank has moved ahead of a scheduled meeting. The next policy statement is due in October 2022.

MAS has been on a path of gradual monetary policy tightening in view of the rise in underlying inflation and steady economic recovery. Prices of goods and services have surged amid supply disruptions due to the war in Ukraine and Covid-19 lockdowns in China. 

MAS said the Singapore economy remains on track to expand at a credible pace in 2022, though with slowing momentum, it said.

MTI said the manufacturing sector expanded by 8 per cent year on year in the second quarter, similar to the 7.9 per cent growth in the previous quarter.

The construction sector grew by 3.8 per cent year on year, faster than the 1.8 per cent growth in the previous quarter.

Among the services sectors, the wholesale and retail trade, and transportation and
storage sectors, collectively grew by 2.8 per cent year-on-year, less than the 3.4 per cent growth in the previous quarter. 

However, on a quarter-on-quarter seasonally adjusted basis, growth in manufacturing, construction and services moderated.

The manufacturing sector expanded by 0.3 per cent in the second quarter, easing from the 0.5 per cent growth in the preceding quarter. Construction expanded by 1.9 per cent, down from the 2.9 per cent growth in the first quarter. Services expanded by 0.2 per cent, less than the 1.8 per cent growth recorded in first quarter.

The information and communications, finance and insurance, and professional services sectors expanded by 4.1 per cent year on year, moderating from the 5.7 per cent growth in the prior quarter.

The accommodation and food services, real estate, administrative and support services, and other services sectors grew 8.2 per cent year on year, accelerating from the 3.5 per cent growth in the previous quarter. 

Their expansion was supported by the easing of domestic and border restrictions. For example, growth in the food services sector was bolstered by the removal of dine-in group size limits in end-April. The value-added of this group of sectors though remained 2.7 per cent below its pre-pandemic level in the second quarter of 2019.