Singapore, December 18, 2017 – The Singapore economy has rebounded, led by external demand and a turnaround in trade, and growth is gradually becoming more broad-based, according to the 2017 Annual Consultation Report on Singapore published by the ASEAN+3 Macroeconomic Research Office (AMRO) today. The report was prepared on the basis of AMRO’s Annual Consultation Visit to the country in July 2017 and data availability as of October 9, 2017.

Singapore’s economy is projected to expand by 3.0 percent in 2017 and 2.6 percent in 2018. Economic activities across most sectors will continue to gain traction with improved external demand and accommodative monetary and expansionary fiscal policy. Core inflation is forecast at 1.5 percent in 2017 and inflationary pressures will likely be restrained due to the slack in the labor market. Downside risk to growth could stem from a rise in trade protectionist sentiments, and a sharp fall in energy prices could also further hurt Singapore’s marine and offshore engineering sector.

Singapore is confronting an aging society, and productivity growth has been uneven. The government has initiated a multi-year restructuring effort to steer the country towards a labor-lean, high-productivity and innovation-based economy. Supportive policies have been adopted to facilitate the labor market adjustment such as the SkillsFuture initiatives, the Career Support Programme, the Career Advisor Programme, the Professional Conversion Programmes, and Career fairs.

Fiscal spending is budgeted to increase in FY2017 to support recovery and restructuring of the economy, and foster an innovative and connected economy. Budget FY2017 builds on efforts of economic restructuring proposed by the Committee on the Future Economy, such as SMEs Go Digital Programme and the Tech Access Initiative, among many other initiatives. Budget FY2017 also provides help for those affected by restructuring, at the same time, building an inclusive society. So far, both expenditure and operating revenue have been on track to meet their targets

An appropriate policy mix should be calibrated to support growth while tackling structural challenges. In addition to a supportive fiscal policy, the authorities should continue to maintain an accommodative monetary policy to support the economy in view of the low inflation outlook in the coming quarters. At the same time, as the growth outlook has improved, the Monetary Authority of Singapore has removed its forward guidance in the October 2017 monetary policy statement.

Banks in Singapore have a high capital adequacy ratio while nonperforming loan ratio remains low. The financial system liquidity is also abundant. Banks’ profitability will also continue to improve due to both net interest income and non-interest income.

While corporate and household debt have remained elevated, the rise in leverage has stabilized and the risk profile of both household and corporate debt has improved. The continuing effects of macroprudential measures have reined in household debt in the past few years, but with persistently low interest rates and a turnaround in market sentiments, it is likely that the property market will recover and household debt will increase further. Therefore, the authorities should maintain the macroprudential measures and be prepared for the scenario of an unexpected sharp spike in interest rates, such that borrowers and the financial sector remain resilient.

About AMRO and AMRO’s Annual Consultation Report:

The ASEAN+3 Macroeconomic Research Office (AMRO) was established to contribute to securing the economic and financial stability of the ASEAN+3 region, which include 10 ASEAN countries and China (including Hong Kong), Japan, and Korea. AMRO fulfils its mandate by conducting macroeconomic surveillance, supporting the implementation of the regional financial arrangements, the Chiang Mai Initiative Multilateralisation (CMIM), and providing technical assistance to the members.

The Annual Consultation Report was prepared in accordance with AMRO’s macroeconomic surveillance function. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.