- First, despite high costs, Singapore attracts FDI due to world class hard and soft infrastructure.
- Second, investment-related policy foresight and stability signal commitment to investors.
- Third, a proactive agenda on health, housing, and education for the population enhance welfare.
- Fourth, incentives for the next generation of tech and idea help maintain competitiveness.
- Finally, large financial savings allow for successful crisis prevention and mitigation.
Commentary: Resilient Singapore
Singapore’s economy is poised to outperform in 2024 (DBS forecast: 3.8%), well above analysts’ expectations of around 2% a year ago. It has been a good year for Singapore’s businesses; export demand has been strong, as have local tourism and events. Growth has been broad-based, with key sectors expanding.
In their 2025 Singapore outlook publication, economist Chua Han Teng, and macro strategists Eugene Leow and Philip Wee, see the following key features in the coming year:
- Favourable growth prospects, barring unexpected significant global negative shocks. Real GDP to grow in line with potential at 2.8% in 2025.
- A new dawn on the cards for the Johor-Singapore Special Economic Zone (JS-SEZ), with potential to add substantial value for businesses and workers.
- Moderating inflation, moving closer to the pre-pandemic 2010-2019 average of ~2%.
- Government’s focus to be anchored by the Forward Singapore (Forward SG) agenda, with some fiscal room to balance long-term imperative with some near-term exigencies.
- Some scope for the Monetary Authority of Singapore (MAS) to slightly reduce the appreciation pace of the SGD NEER policy band in 2025.
- USD/SGD could push above 1.35 in the first half of 2025.
- Downside to SGD rates will be constrained by a murkier US Fed cut path.
Singapore has faced numerous shocks in recent years, starting with the pandemic but then extending into post-pandemic inflation surge (The consumer price index has risen by 16.5% since the beginning of 2020), volatility in external demand and energy prices, increasing geopolitical tension, a tight labour market and related immigration matters, complications of managing surging capital inflows, and challenges of a frothy property market. And yet, the economy has chugged along, taking into stride cost of living concerns, tightening of monetary and macroprudential policies, and rising China-US tensions. After dipping in 2020, and despite the subsequent inflation surge, real per capita income (in purchasing power parity) has risen by nearly 11%.
What explains Singapore’s resiliency? First, despite high costs, the economy attracts foreign investment because of world class infrastructure, logistics, human capital, public services, rule of law, and a business-friendly regulatory framework. Steady rise in brownfield investments in tech, energy, pharma, and hospitality attest to that. Second, investment-related policy foresight and stability signal commitment to investors with long-term horizon. Third, a proactive agenda on health, housing, and education for the population, and incentives for the next generation of tech and ideas, help maintain the quality of life, human capital, and competitiveness.
Finally, prudent fiscal and monetary policies have helped boost financial buffers, worth several hundred percent of GDP, to deal with crises, climate change, and tech disruptions. Cushions matter above all in a turbulent world.
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