Abstract
Singapore’s economy is slowing against the backdrop of a deteriorating external environment and a softening of exports. The main near-term risks are a protracted slowdown in advanced economies and a sharp increase in global financial stress. Given Singapore’s openness, these shocks would hit the economy severely through weaker exports, reduced capital inflows, slower credit, and a fall in financial market activity. The authorities have sufficient policy space to deploy a decisive response in case these risks materialize. A rapid increase in foreign currency lending may also raise the risk of funding strains.
On February 8, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Singapore.1
Background
The Singaporean economy emerged strongly from the 2008–09 global financial crisis, with real GDP growth reaching 14½ percent in 2010. However, the transition from recovery to sustained growth was disrupted by an abrupt deterioration in the external environment from the second quarter of 2011. This has dragged down exports, particularly of electronics, and weighed down on investment, leading to slower economic growth. Consumption has remained resilient, however, on the back of a robust labor market.
Headline inflation rose steadily through mid-2011 and has remained elevated thereafter, driven up by accommodation and transport costs. Core inflation—which excludes those two components—remained low and relatively stable from mid-2010, but has risen slightly in recent months reflecting higher food and service prices.
Bouts of global financial market turbulence in the second half of 2011 led to a decline in Singapore’s stock market index, a depreciation of the Singapore dollar, and episodes of heightened volatility in equity and currency markets. Domestic credit, however, has been expanding rapidly, particularly business loans, reflecting in part the strong economic recovery but also low interest rates and rising credit demand from the Asia region. Public and private residential property prices have also been growing rapidly, leading to a decline in house affordability, although housing prices and transaction volumes have moderated recently.
Despite these developments, the financial system has remained sound, with domestic banks maintaining strong capital and liquidity positions, and non-performing loans remaining low. The aggregate balance sheets of the corporate and household sectors are also strong.
The near-term outlook is clouded by an extraordinary degree of uncertainty. Growth is expected to slow significantly in 2012, driven down by softening external demand and global financial volatility. Against the backdrop of a weaker external and domestic outlook, headline inflation is also expected to ease sharply in 2012.
Executive Board Assessment
Executive Directors commended the authorities for proactive macroeconomic and financial policies, which have underpinned a strong rebound in activity. Directors noted that Singapore’s economic growth is likely to slow in the near term amidst an unsettled global environment, and that significant downside risks weigh on the outlook. Nevertheless, they agreed that Singapore has sufficient policy room and tools to cushion the impact of external shocks and preserve macroeconomic stability.
Against this background, Directors agreed that the current stance of monetary policy appropriately balances the risks to inflation and growth. With price pressures expected to ease and inflation expectations well anchored, there is scope for cautiously easing monetary policy further in the event of a sharper than expected deterioration of the growth outlook. In such a scenario, the authorities could also use available fiscal space to boost aggregate demand, support employment, and protect low-income families.
Directors commended the authorities for their proactive supervision of banks and welcomed the measures adopted to safeguard financial stability, including capital requirements for Singapore incorporated banks that are more prudent than the Basel III norms. In light of the rapid growth in credit and house prices, Directors encouraged continued close monitoring of developments to mitigate risks to credit quality, including in the corporate sector. They also recommended that the authorities maintain close coordination among different government agencies overseeing the housing market, and stand ready to implement additional measures if necessary.
Directors noted that a loosening of the fiscal stance and a continued appreciation of the real exchange rate would help reduce the current account surplus and facilitate a rebalancing of the economy over time. In this regard, they welcomed the government’s medium term plan to increase public spending on housing, infrastructure, and education.
Directors supported the authorities’ approach to promoting inclusive growth, centered on keeping unemployment low and preserving incentives to work. They agreed that complementing these efforts with enhanced and targeted social safety nets could help reduce inequality. More broadly, Directors looked forward to further progress in improving labor productivity across the economy.
Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2011 Article IV Consultation with Singapore is also available.
Singapore: Selected Economic and Financial Indicators, 2006–12
On a calendar year basis.
Overall balance excluding investment income, capital revenue, interest payments, and net lending.
Figures for 2011 are as of end-November.
In months of following year’s imports of goods and services.
Singapore: Selected Economic and Financial Indicators, 2006–12
| Est. | Proj. | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | ||||
| Growth (percentage change) | ||||||||||
| Real GDP | 8.7 | 8.8 | 1.5 | -0.8 | 14.5 | 4.8 | 2.7 | |||
| Total domestic demand | 7.8 | 7.2 | 14.8 | -6.8 | 7.2 | 4.8 | .0 | |||
| Consumption | 4. | 5.7 | 4.0 | 0.9 | 5.7 | 5.0 | .8 | |||
| Private consumption | .5 | 6.4 | .2 | 0.2 | 4.2 | 5.7 | 4.1 | |||
| Gross capital formation | 16.6 | 10.7 | 8.1 | -19. | 10. | 4.4 | 1.5 | |||
| Saving and investment (percent of GDP) | ||||||||||
| Gross national saving | 45.9 | 48.4 | 44.8 | 45.4 | 46.0 | 44.1 | 4.0 | |||
| Gross domestic investment | 21.0 | 21.1 | 0.2 | 26.4 | 2.8 | 24.7 | 24.7 | |||
| Inflation and unemployment (period average, percent) | ||||||||||
| CPI inflation | 1.0 | 2.1 | 6.6 | 0.6 | 2.8 | 5.2 | .0 | |||
| Unemployment rate | 2.7 | 2.1 | 2.2 | .0 | 2.2 | 2.1 | 2.2 | |||
| Central government budget (percent of GDP) 1/ | ||||||||||
| Revenue | 20.2 | 2.1 | 24.4 | 19.7 | 21.8 | 2.1 | 22.8 | |||
| Expenditure | 1.1 | 12.7 | 17.2 | 18.8 | 18.6 | 19.0 | 19.4 | |||
| Overall balance | 7.0 | 10.5 | 7.2 | 1.0 | .2 | 4.1 | .5 | |||
| Primary balance 2/ | -1.7 | 0.0 | -2.5 | -.9 | -2.5 | -1.4 | -1.6 | |||
| Money and credit (end of period, percentage change) | ||||||||||
| Broad money (M) 3/ | 19.1 | 14.1 | 11.6 | 10.6 | 8. | 10.2 | … | |||
| Lending to nonbanking sector 3/ | 6. | 19.9 | 16.6 | .4 | 14.7 | 0.5 | … | |||
| Three-month interbank rate (percent) | .4 | 2.4 | 1.0 | 0.7 | 0.4 | 0.4 | … | |||
| Balance of payments (US$ billions) | ||||||||||
| Current account balance | 6.1 | 48.5 | 27.6 | 4.9 | 49.5 | 50.2 | 49.2 | |||
| (In percent of GDP) | (24.8) | (27.) | (14.6) | (19.0) | (22.2) | (19.4) | (18.) | |||
| Trade balance | 42.2 | 46.8 | 27.8 | 29.2 | 46.6 | 50. | 51. | |||
| Exports, f.o.b. | 274. | 0.1 | 42.8 | 27.0 | 57.9 | 418.1 | 427.6 | |||
| Imports, f.o.b. | -22.2 | -256. | -15.0 | -24.8 | -11.2 | -67.8 | -76. | |||
| Financial account balance | -17.1 | -1.9 | -1.6 | -26.5 | -6.6 | -29.8 | -2.9 | |||
| Overall balance | 17.0 | 19.4 | 1.1 | 11. | 42.2 | 20.0 | 15.8 | |||
| Gross official reserves (US$ billions) | 16. | 16.0 | 174.2 | 187.8 | 225.8 | 27.7 | 25.5 | |||
| (Months of imports) 4/ | (4.9) | (4.9) | (6.5) | (5.5) | (5.7) | (5.8) | (5.9) | |||
| Exchange rate (period average) | 1.59 | 1.51 | 1.41 | 1.45 | 1.6 | 1.26 | … | |||
On a calendar year basis.
Overall balance excluding investment income, capital revenue, interest payments, and net lending.
Figures for 2011 are as of end-November.
In months of following year’s imports of goods and services.
Singapore: Selected Economic and Financial Indicators, 2006–12
| Est. | Proj. | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | ||||
| Growth (percentage change) | ||||||||||
| Real GDP | 8.7 | 8.8 | 1.5 | -0.8 | 14.5 | 4.8 | 2.7 | |||
| Total domestic demand | 7.8 | 7.2 | 14.8 | -6.8 | 7.2 | 4.8 | .0 | |||
| Consumption | 4. | 5.7 | 4.0 | 0.9 | 5.7 | 5.0 | .8 | |||
| Private consumption | .5 | 6.4 | .2 | 0.2 | 4.2 | 5.7 | 4.1 | |||
| Gross capital formation | 16.6 | 10.7 | 8.1 | -19. | 10. | 4.4 | 1.5 | |||
| Saving and investment (percent of GDP) | ||||||||||
| Gross national saving | 45.9 | 48.4 | 44.8 | 45.4 | 46.0 | 44.1 | 4.0 | |||
| Gross domestic investment | 21.0 | 21.1 | 0.2 | 26.4 | 2.8 | 24.7 | 24.7 | |||
| Inflation and unemployment (period average, percent) | ||||||||||
| CPI inflation | 1.0 | 2.1 | 6.6 | 0.6 | 2.8 | 5.2 | .0 | |||
| Unemployment rate | 2.7 | 2.1 | 2.2 | .0 | 2.2 | 2.1 | 2.2 | |||
| Central government budget (percent of GDP) 1/ | ||||||||||
| Revenue | 20.2 | 2.1 | 24.4 | 19.7 | 21.8 | 2.1 | 22.8 | |||
| Expenditure | 1.1 | 12.7 | 17.2 | 18.8 | 18.6 | 19.0 | 19.4 | |||
| Overall balance | 7.0 | 10.5 | 7.2 | 1.0 | .2 | 4.1 | .5 | |||
| Primary balance 2/ | -1.7 | 0.0 | -2.5 | -.9 | -2.5 | -1.4 | -1.6 | |||
| Money and credit (end of period, percentage change) | ||||||||||
| Broad money (M) 3/ | 19.1 | 14.1 | 11.6 | 10.6 | 8. | 10.2 | … | |||
| Lending to nonbanking sector 3/ | 6. | 19.9 | 16.6 | .4 | 14.7 | 0.5 | … | |||
| Three-month interbank rate (percent) | .4 | 2.4 | 1.0 | 0.7 | 0.4 | 0.4 | … | |||
| Balance of payments (US$ billions) | ||||||||||
| Current account balance | 6.1 | 48.5 | 27.6 | 4.9 | 49.5 | 50.2 | 49.2 | |||
| (In percent of GDP) | (24.8) | (27.) | (14.6) | (19.0) | (22.2) | (19.4) | (18.) | |||
| Trade balance | 42.2 | 46.8 | 27.8 | 29.2 | 46.6 | 50. | 51. | |||
| Exports, f.o.b. | 274. | 0.1 | 42.8 | 27.0 | 57.9 | 418.1 | 427.6 | |||
| Imports, f.o.b. | -22.2 | -256. | -15.0 | -24.8 | -11.2 | -67.8 | -76. | |||
| Financial account balance | -17.1 | -1.9 | -1.6 | -26.5 | -6.6 | -29.8 | -2.9 | |||
| Overall balance | 17.0 | 19.4 | 1.1 | 11. | 42.2 | 20.0 | 15.8 | |||
| Gross official reserves (US$ billions) | 16. | 16.0 | 174.2 | 187.8 | 225.8 | 27.7 | 25.5 | |||
| (Months of imports) 4/ | (4.9) | (4.9) | (6.5) | (5.5) | (5.7) | (5.8) | (5.9) | |||
| Exchange rate (period average) | 1.59 | 1.51 | 1.41 | 1.45 | 1.6 | 1.26 | … | |||
On a calendar year basis.
Overall balance excluding investment income, capital revenue, interest payments, and net lending.
Figures for 2011 are as of end-November.
In months of following year’s imports of goods and services.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.