Middle East conflicts, high interest rates could dampen Singapore’s economic growth

While the Monetary Authority of Singapore stuck to its view that the economy would grow 1 per cent-3 per cent this year, it said in its biannual Macroeconomic Review published on Friday that the outlook depends on the global pivot to monetary easing and a tech upswing.

“There are still lingering risks from higher for longer global interest rates and capital flow volatility,” the MAS said in the report. “An escalation in geopolitical conflicts could also lead to an abrupt increase in financial market stress and heightened uncertainty, dampening global and domestic growth prospects.”

The MAS expects the US Federal Reserve to start lowering borrowing costs in the third quarter, which together with a recovery in global chip sales can help power Singapore’s GDP growth to around its potential rate for the whole of 2024.

Events of the past week illustrate just how quickly and drastically shocks could wreak havoc on global and domestic economies. Fears of a broader Middle East conflict and higher oil prices spurred sharp swings in currencies, reignited price pressures and a return to hawkish central banking across Asia. Investor bets of a Fed rate cut have been pushed back to later this year, if not next year.

For now, Singapore’s policymakers affirmed their estimate for core and headline inflation to average 2.5 per cent-3.5 per cent this year, saying “in the absence of major fresh shocks to costs, the disinflation trend should reassert itself.”

The central bank kept its monetary policy tight earlier this month, wary of still-elevated price pressures.

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“The risks to the inflation outlook continue to evolve amid heightened global uncertainties, including