IMF Staff Completes 2018 Article IV Mission to Singapore

IMF News, May 16, 2018

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Real GDP expanded by 3.6 percent in 2017, up from 2.4 percent in 2016.
Growth remained strong in early 2018, reaching 4.3 percent in the first quarter of 2018 compared to the corresponding period of 2017.
GDP growth is projected to reach 2.9 percent in 2018, driven by domestic demand.
Momentum in electronics exports is expected to remain healthy, but at a more sustainable pace.
A higher contribution to growth is expected from public investment as well as continued support from private investment driven by improvement in global consumer sentiment, stable oil prices, and momentum in the property market.

Headline consumer price inflation turned positive in 2017 after being below zero for nearly two years.
Headline inflation is forecast to average at 1.2 percent in 2018, in response to a healthier labor market, higher imputed rentals, and transmission of higher global oil prices.
MAS core inflation is projected to average 1.6 percent in 2018.
Inflation projections remain dependent on volatile global oil prices.

The labor market continues to improve: employment of resident workers grew, labor market slack narrowed, and the rate of unemployment declined.
Labor productivity growth rose to a six-year high.
Overall employment fell mainly due to a decrease in Work Permit holders in the Construction and Marine Shipyard sectors.
Income inequality among resident households, as measured by the Gini coefficient, is below its peak in 2007, but remains elevated in the regional context.

In April the MAS recalibrated its monetary policy in response to strengthened outlook for inflation and growth at home.
Given the economy’s cyclical strength, continued recovery in the labor market, and a positive fiscal impulse, the team supports further data dependent normalization of monetary policy during 2018-19.

Prudent fiscal policy has resulted in the buildup of significant buffers over time.
The 2018 budget provides stimulus with a boost to infrastructure and other capital outlays.
The team supports the stimulus and notes that it should help address aging-related healthcare and infrastructure needs in the future.
The team calls for continued enhancement and broadening of social insurance arrangements.
The team notes that the choice of medium-term fiscal options warrants careful weighing of macroeconomic and distributional considerations.

Financial sector and macroprudential policies have ensured financial stability.
Household and corporate sector leverage are elevated and warrant continued monitoring.
Banking sector health remains sound, backed by high capital, liquidity, profitability and overall strong asset quality.
The MAS appropriately supports development of financial technology (FinTech) while adapting regulations to emerging risks.

A successful transition of Singapore’s economy to an innovation-based growth model could help raise productivity and investment, and exert positive spillovers for ASEAN and beyond.
Intangible capital, including R&D, software, brands and other intangible assets, is becoming more prominent in Singapore’s growth story and should help the transition to a future economy that relies on innovation, automation, and digitalization.
Policy makers should continue cooperation with all stakeholders and focus on broad measures to support a vibrant innovation ecosystem.
The team acknowledges Singapore’s leading role in regional cooperation, including through its chairmanship of ASEAN during 2018 and its priorities of resilience and innovation for the region.

Risks to the growth outlook stem mainly from:
- intensification of global trade tensions,
- tighter global financial conditions, and
- weaker-than-expected global growth.
At home, risks include challenges in transitioning to an innovation-based growth model and elevated household and corporate leverage.

IMF Staff Completes 2018 Article IV Mission to Singapore, May 16, 2018.