SINGAPORE, June 30, 2017 – The ASEAN+3 Macroeconomic Research Office (AMRO) today publishes its 2016 Annual Consultation Report on Singapore, which was prepared on the basis of its Annual Consultation Visit to the country in September 2016 and data availability as of 31 December 2016.

Singapore’s economy is expected to grow modestly at 1.0 to 3.0 percent in 2017, according to the report. The downside risks are stagnant global trade and subdued investment growth. The weak external condition had a negative spillover on domestic demand and labor market. Fiscal policy should be expansionary to support near-term growth and long-term economic restructuring. Meanwhile, emerging trade protectionism and inward looking policies in some economies could also pose downside risks.

Despite surprisingly strong GDP growth in the last quarter of 2016, the economy continues to face headwinds from adverse cyclical conditions in some sectors as reflected in higher retrenchments and rising unemployment. Monetary policy in Singapore is centered on the management of the nominal effective exchange rate (NEER), which is allowed to fluctuate within a policy band. Since inflation was subdued, the Monetary Authority of Singapore kept its monetary policy stance unchanged in October 2016 with the rate of appreciation of the Singapore Dollar NEER policy band at zero percent.

An expansionary fiscal policy was maintained to support the weak economy in FY 2016. Fiscal spending is estimated to have increased considerably, especially in healthcare. In addition, Budget 2016 introduced policies to build an inclusive society and provided incentives for businesses to increase productivity. The household debt level has stabilized, due to the effects of macro-prudential measures. The corporate debt level is declining, but remains elevated. While some companies have come under stress, especially in the oil and gas sector, stress tests indicate the corporate sector remains generally resilient to earnings decline and interest rate increases. While the financial system is sound, there are signs of deterioration in asset quality.

Property market prices continue to adjust gradually even as increased supply comes on stream. While conditions in the property market remains stable, downside risks could arise if interest rates increase sharply and the economy remains weak. The authorities should continue to monitor closely developments in the sector to ensure stable and sustainable conditions in the market.

As Singapore has fiscal space, an expansionary fiscal policy should be maintained to support short-term growth while fostering long-term economic restructuring. The Committee on the Future Economy (CFE) outlined seven broad and “mutually-reinforcing” strategies for Singapore to stay ahead amid challenging times and be the “pioneers of the next generation” through innovation, value creation and entrepreneurship.

The current monetary policy stance is accommodative. While there have been some improvements in growth prospects, inflation will remain subdued, given the softening labor market and weaker domestic demand.

In the financial markets, the authorities should remain vigilant about any risks to the domestic financial sector. Some cases of corporate defaults, while isolated and contained, would need to be resolved in an efficient and orderly manner that does not undermine broader market confidence.