Press Release No. 18/176

IMF Staff Completes 2018 Article IV Mission to Singapore

May 16, 2018

• Singapore’s economy strengthened markedly in 2017, with GDP growth projected to moderate in 2018 at 2.9%.
• 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.
• The team supports further data dependent normalization of monetary policy during 2018-19 and the expansionary fiscal policy.

An International Monetary Fund (IMF) team led by Alex Mourmouras visited Singapore from May 3 to May 15 to hold discussions in the context of the country’s 2018 Article IV Consultation. At the end of the visit, Mr. Mourmouras issued the following statement:

“Singapore’s economy strengthened markedly in 2017, benefiting from a synchronized global recovery and a surge in electronics exports, while private domestic demand continues to recover. 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. Headline consumer price inflation turned positive in 2017, after being below zero for nearly two years. The current account surplus remained substantial, close to 19 percent of GDP.

“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. However, 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.

“A moderation of growth momentum is expected in 2018. 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. Improvement in global consumer sentiment, stable oil prices, and the ongoing momentum in the property market should help private investment. A higher contribution is also expected from public investment. As growth becomes more entrenched, labor market slack should decline further, providing additional support for private consumption.

“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, reflecting strengthening of domestic demand. Inflation projections remain dependent on volatile global oil prices.

“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, 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.

“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. It 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. However, household and corporate sector leverage are elevated and warrant continued monitoring. The 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.

“Intangible capital, including R&D, software, brands and other intangible assets, is becoming more prominent in Singapore’s growth story. It should help Singapore’s 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 would like to acknowledge the leading role Singapore plays in regional cooperation, including through its chairmanship of ASEAN during 2018 and its priorities of resilience and innovation for the region. Singapore is also a leading and active participant in global and regional organizations and supports the development of economic policy capacity in the region. The team expresses its gratitude to the authorities for their openness, cooperation, and hospitality.”