IMF Staff Completes 2017 Article IV Mission to Singapore

IMF News, May 9, 2017

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Real GDP expanded by 2 percent in 2016, broadly unchanged from 2015.
Looking ahead, GDP growth is projected to firm to 2.2 percent in 2017, building on the late-2016 pickup in exports.
The recovery of trade has been accompanied by a pickup in business loans and seems to be translating to increased demand for consumer loans.

Headline consumer price inflation turned positive in late 2016 after remaining below zero for nearly two years.
Inflation pickup to 0.7 percent (y/y) in March 2017 mainly reflects higher energy prices.
Inflation is projected to average around 1 percent in 2017, as the impact of higher oil prices is partly offset by declining property rents.
Core inflation averaged about 1.5 percent (projection) and had reached 1.2 percent in March 2017.

The labor market continues to soften; real wages rose in 2016, but incidents of redundancy have been rising in recent quarters.
Manufacturing has shed workers for ten consecutive quarters, partly reflecting structural transformation.
The construction sector recorded net job losses in the last three quarters due to cyclical factors.
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.
The IMF team welcomes the authorities’ efforts to operationalize an 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.
Policy aims include enhancing productivity and growth over the medium term, making growth more inclusive, tackling rapid population aging, fostering lifelong learning, skill and family adaptation, and turning Singapore into a global innovation hub.

Fiscal policy has appropriately become more expansionary in recent years and should be the first line of defense if downside risks to demand materialize.
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.
An appropriate monetary policy response would 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.

Risks to the growth outlook arise mainly from external sources given Singapore’s highly open economy.
Main external risks include the adverse impact of more inward-looking policies in major economies.
Slowdowns in major emerging economies could adversely impact Singapore.
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 authorities’ financial sector and macro prudential policies have ensured financial stability.
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).

IMF mission concluding statement, May 9, 2017.