An International Monetary Fund (IMF) team led by Chikahisa Sumi visited Singapore during April 30-May 12 to hold discussions in the context of the country’s 2014 Article IV Consultation. At the conclusion of the visit, Mr. Sumi issued the following statement:
“Singapore’s economy continues to perform well, benefiting from the global economic upturn. Growth recovered to 4.1 percent in 2013, from 1.9 percent in 2012. Net exports accounted for half of the growth, while private and public consumption contributed the other half. A rising trade surplus drove up the current account of the balance of payments to 18.4 percent of GDP in 2013, from 17.4 percent of GDP in 2012. Inflation has decelerated. A series of targeted, escalating macroprudential policies contributed to cool the housing and car permit markets. This helped push down headline inflation to 2.4 percent on average in 2013, from 4.6 percent in 2012. However, core inflation, while still contained at 2.0 percent in March (year-on-year), has been edging up in recent months reflecting accumulating wage pressures, despite some offset from relatively benign import prices. The impact of the United States’ ongoing exit from unconventional monetary policy (UMP) has been contained. Singapore’s financial markets have so far absorbed bouts of volatility, such as the spike in global risk aversion early this year, with little evident stress.
“Looking ahead, recovering demand in advanced economies is likely to be offset by the gradual tightening in global monetary conditions. As a result, Singapore’s growth is expected to moderate to around 3.6 percent during 2014−2015, narrowing the positive output gap. The current account surplus is projected to narrow gradually by about 3½ percent of GDP to around 15 percent of GDP over the medium term.
“The Monetary Authority of Singapore’s (MAS) current monetary policy stance remains appropriate to contain demand pressures in the context of a positive output gap and improving external demand while facilitating relative price adjustment as the economy reduces its labor intensity. The gradual appreciation path will also help anchor inflation expectations.
“The government multi-year economic restructuring program to raise the productivity of domestic labor and land, make growth more inclusive, and cope with a rapidly aging population, is a welcome response to the long-term challenges facing the Singaporean economy. The FY2014/15 budget contained several important measures aimed at achieving these objectives, including additional assistance to small and medium enterprises to help them adopt more efficient production technologies and the establishment of a Pioneer Generation Fund to finance rising health care costs for the elderly.
“External risks to the outlook have lessened as economic and financial conditions in advanced economies have improved in recent months, but there is a need to remain vigilant. Singapore’s economy could be affected by a slowdown in growth in China, financial market volatility related to a disorderly UMP exit, and geopolitical risks. Prudent macroeconomic policy responses, as well as the continued vigilance already shown by MAS to control financial sector vulnerabilities, should help mitigate the impact of these shocks.
“The mission would like to acknowledge the leading role Singapore plays in international economic and financial cooperation through its active participation in global and regional organizations, as well as its support for capacity building in the region. The mission expresses its gratitude to the authorities for their openness, cooperation, assistance and hospitality.”