By Aradhana Aravindan and Chen Lin
SINGAPORE (Reuters) – Singapore’s economy likely expanded at a slower pace in the first quarter, but is expected to stay on its recovery path this year as border controls are relaxed further, giving the central bank room to tighten monetary policy to tackle inflation.
Advance data on Thursday is seen showing gross domestic product (GDP) expanded 3.8% in January-March from a year ago, according to the median forecast of 15 economists in a Reuters poll, as the manufacturing sector comes off a high base and amid travel curbs to curb a COVID-19 outbreak driven by Omicron.
Manufacturing remained the main growth engine, helped in part by demand for semiconductors, analysts said. The city-state’s economy expanded 6.1% year-on-year in the fourth quarter of 2021.
Singapore’s recent easing of border controls and COVID-19 rules are expected to boost services from the second quarter, partly offsetting the negative impact of the Ukraine-Russia war, supply disruptions and rising energy prices, Maybank economists Chua Hak Bin and Lee Ju Ye said.
The trade-reliant economy grew 7.6% last year, the fastest pace in a decade, recovering from a 4.1% contraction in 2020.
The government had projected GDP growth of 3-5% in 2022, though this was before Russia began what it calls “a special military operation” in Ukraine on Feb. 24.
Inflation has become the key risk this year and while economists expect GDP to continue to grow they are watching to see whether official forecasts are revised when the central bank gives its monetary policy statement, also on Thursday.
Sixteen economists expect the Monetary Authority of Singapore to tighten its policy, but are divided on how aggressive it will be and which of its settings will change.
Instead of interest rates, the MAS manages policy by letting the local dollar rise or fall against currencies of its main trading partners within an undisclosed band, known as the Nominal Effective Exchange Rate (NEER).
It adjusts its policy via three levers: the slope, mid-point and width of the policy band.
DBS Senior FX Strategist Philip Wee expects a third steepening in the slope of the SGD NEER policy band to 3%.
“We expect the authority to keep the door open for another tightening in October. The MAS could re-centre the policy band higher six months after returning to a 3% slope, as they did in April 2008 and April 2011,” he said.
(Reporting by Aradhana Aravindan and Chen Lin in Singapore; Polling by Devayani Sathyan and Arsh Tushar Mogre; Editing by Ed Davies)
