[SINGAPORE] Singapore’s growth outlook has turned more cautious as US tariffs hit the country not just directly, but through their impact on regional neighbours and global confidence, said the Monetary Authority of Singapore (MAS) on Monday (Apr 28).
Still, economists are divided on whether Singapore will undergo a technical recession, after gross domestic product declined 0.8 per cent sequentially in the first quarter.
The Republic’s external-facing sectors, particularly manufacturing and financial, will be most affected by the tariffs, said MAS in its twice-yearly Macroeconomic Report.
It reiterated the official full-year growth forecast range of 0 to 2 per cent, but noted “significant uncertainty over how trade policy actions will unfold”.
The forecast – downgraded with advance Q1 growth figures earlier in April – represents a slowdown from 2024’s 4.4 per cent rate, mainly due to weakness in trade-related and modern services sectors, said MAS.
But it noted both downside and upside risks. Prolonged trade tensions could cause further disruptions and dampen global demand. But if trade tensions de-escalate, sentiments and export activity will get a boost.
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OCBC chief economist Selena Ling said a technical recession – two straight quarters of quarter-on-quarter decline – is “quite likely” for Singapore.
In Q2, “sequential growth momentum will potentially decelerate further” with tariff uncertainty and escalating US-China tensions, she said.
But the risk of a full recession – with full-year GDP shrinking – depends on how trade talks go during the current 90-day tariff suspension, she added. If higher reciprocal tariffs kick in and sector tariffs are imposed, things could “spiral downhill further”.
For Maybank economist Brian Lee, whether Singapore will experience a technical recession is a “close call”. By his estimate, this will happen if Q2 GDP growth is lower than 2.5 per cent year on year – which is “not implausible”.
Even if that happens, full-year growth can fall within the official forecast range, as long as first-half growth comes in at 3 per cent, he added.
Tariff impact
Earlier in April, the US imposed a baseline 10 per cent tariff – with higher rates for certain countries – on all imports, including those from Singapore.
“The impact of the tariffs will propagate through multiplier effects and generate a broader negative income and demand shock to the Singapore economy,” said MAS.
As the tariffs squeeze export margins, companies may cut production and reduce demand. This could constrain aggregate demand more broadly.
Beyond the direct impact, Singapore will be affected by slower growth in trading partners similarly hit by tariffs – including China, its largest export market.
Singapore exports intermediate goods and services to China, for use in China’s exports to the US – and these may suffer as China faces extremely high US tariffs.
There are similar indirect effects through other regional economies such as Asean, given Singapore’s importance in production and trading supply chains, said MAS.
Growth will also be hurt as confidence is eroded by uncertainty about the final tariff rates, said MAS. This means a broader pullback in global consumption and investment spending.
External weakness
With the US tariffs, prospects for global trade and growth have dimmed, said MAS. Global growth is expected to slow to between 2 and 2.5 per cent in 2025, from 3.2 per cent last year.
Global financial market volatility and risk aversion have risen sharply, while global financial conditions have tightened, said MAS. The tighter financial conditions may further constrain spending and investment – putting further downward pressure on growth.
Singapore’s external-facing industries are expected to take the greatest hit. Manufacturing is likely to suffer from slower demand, due mainly to the global IT industry.
“Ongoing uncertainties are likely to further dampen the already-moderating tech cycle,” said MAS, though it noted that demand for artificial intelligence-related chips will provide some support to the global semiconductor industry.
The financial sector could see reduced credit intermediation activity as investment declines, while fees and commissions might fall with the rise in risk-off sentiment.
In contrast, the domestic-oriented sector “will continue to provide an underlying base of activity in the economy”, said MAS, citing a strong pipeline of construction projects.
While consumer-facing industries such as food and beverage (F&B) and retail continue to face a challenging operating environment, net firm formation in F&B “appears to be on a mild uptrend”.
More disinflation ahead
On inflation, MAS noted that low headline and core inflation in Q1 “reflect a strengthening of the disinflation trend that began in mid-2024”.
Inflation momentum turned negative in Q1 – which is atypical, having only happened twice in the decade before Covid-19, it said.
The current trend appears more similar to 2019, when global trade conflict caused cyclical weakness, said MAS. The low inflation in 2015 was more narrowly based, driven by a large fall in energy prices.
At home, “continuing lacklustre consumer spending” may also be dampening inflation, added MAS.
On balance, global tariffs are likely to be disinflationary, said MAS. US tariffs mean higher imported inflation for the US, but should have little effect on Singapore consumer prices. Instead, weaker global demand will put downward pressure on Singapore’s import costs.
“With the downgrade in Singapore’s GDP growth forecast, domestic demand and cost pressures are also expected to moderate,” said MAS.
As aggregate labour demand eases, so will nominal wage growth. This will weaken discretionary spending by consumers, but also cap unit labour cost increases in the services sector.
As growth slows and inflation cools, UOB associate economist Jester Koh expects that MAS would flatten the policy slope in its July review.
But Maybank’s Lee does not expect further MAS easing this year “in the absence of a deep global recession”.
Labour demand softening
MAS expects employment growth to slow for most sectors, as firms pull back on hiring and expansion plans amid economic uncertainty.
This is especially in the trade-related sectors of manufacturing and wholesale trade. Still, changes in headcount should mainly affect non-resident workers, who account for a large portion of employment in those sectors.
But MAS warned that if aggregate labour demand falls faster than expected, labour market slack could “emerge more conspicuously” – showing up in higher unemployment.
While the job vacancy rate has been declining, the unemployment rate has not risen significantly thus far, as labour demand has been easing against a tight labour market, said MAS.
However, if labour demand falls significantly from here, such that the market is no longer as tight, further declines in job vacancies will cause a greater rise in unemployment.
