Mission Concluding Statement 

An International Monetary Fund (IMF) team led by Alex Mourmouras visited Singapore from April 27 to May 9 to hold discussions in the context of the country’s 2017 Article IV Consultation. At the end of the visit, Mr. Mourmouras issued the following statement:

“Singapore’s growth has slowed in recent years, reflecting the post-Global Financial Crisis (GFC) trade and global growth slowdown, as well as aging and tighter foreign worker policies at home. In this context, Singapore’s growth held up in 2016. Real GDP expanded by 2 percent, broadly unchanged from 2015. Headline consumer price inflation turned positive in late 2016, after remaining below zero for nearly two years. The pickup in inflation, to 0.7 percent (y/y) in March 2017, mainly reflects higher energy prices.

“The labor market continues to soften. While real wages rose in 2016, incidents of redundancy have been rising in recent quarters. Partly reflecting structural transformation of the sector, manufacturing has now shed workers for ten consecutive quarters, while the construction sector has also recorded net job losses in the last three quarters due to cyclical factors. As the contraction of employment in these sectors is mainly due to a decrease in Work Permit holders, the unemployment rate has inched up only modestly.

“Looking ahead, GDP growth is projected to firm to 2.2 percent in 2017, building on the late-2016 pickup in exports which has been sustained in the first quarter of 2017 on the improved outlook for global semiconductor sales. The recovery of trade, which has been accompanied by a pickup in business loans, seems to be translating to increased demand for consumer loans. Inflation is projected to average around 1 percent in 2017, as the impact of higher oil prices is partly offset by declining property rents, against an unchanged monetary policy stance, with core inflation averaging about 1.5 percent.

“Risks to the growth outlook arise mainly from external sources. Notwithstanding the recent recovery of trade, economic and geopolitical risks have risen and could affect Singapore’s highly open economy. The main external risks stem from the adverse impact of more inward-looking policies in major economies. Slowdowns in major emerging economies could adversely impact Singapore. On the other hand, spillovers from higher-than-expected growth in the US, could lift near-term growth. Tightening in global financial conditions, including more rapid-than-expected normalization of US monetary policy and significant further strengthening of the US dollar, could adversely affect segments of the household and corporate sectors.

“The IMF staff team welcomes the authorities’ concerted efforts to operationalize their ambitious, long-term economic restructuring plan toward a labor-lean economy based on innovation and the new digital economy, guided by the report of the Committee on the Future Economy (CFE) and Budget 2017. In addition to policies to enhance productivity and growth over the medium term, Singapore’s economic and social policies are aiming to make growth more inclusive and tackle rapid population aging. The drive to turn Singapore into a global innovation hub and prepare its economy and society for population aging bodes well, as it is backed by top-tier human and physical capital and by proactive policies to foster inclusion, and promote lifelong learning and skill and family adaptation. These proactive responses should facilitate the transition by mitigating disruption from technology and aging.

“The team welcomes the authorities’ supportive macroeconomic policies in an environment of modest growth. Fiscal policy has appropriately become more expansionary in recent years. This has been accompanied by an accommodative monetary policy. The team concurs that no adjustment to monetary policy is needed in the near term and welcomes Monetary Authority of Singapore (MAS)’ provision of forward guidance in recent monetary policy statements. Core inflation has been edging up, on recovering energy prices, reaching 1.2 percent in March 2017. Fiscal policy should be the first line of defense in case downside risks to demand materialize.  In addition, an appropriate monetary policy response would also be needed if core inflation significantly undershoots the medium-term target. Fiscal support would be useful to reduce slack and narrow the current account gap into the medium term, including by investing further in labor market initiatives which support workers’ transition to new jobs. 

“The authorities’ financial sector and macro prudential policies have ensured financial stability. While elevated household and corporate sector leverage warrant continued monitoring, banking sector health remains sound, backed by high capital, liquidity, and profitability ratios and still-low non-performing loans (NPLs).

“The team would like to acknowledge the leading role Singapore plays in international economic and financial cooperation through its active participation in global and regional organizations, as well as its support for capacity building in the region. The team expresses its gratitude to the authorities for their openness, cooperation, and hospitality.”