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SINGAPORE, Jan. 2 – It might seem like the dark clouds hanging over Singapore’s post-pandemic economy in 2023 might finally burn in 2024, but that doesn’t mean people should stop preparing for rain.
Experts expect the Republic’s economy to grow faster this year, between 1% and 3%, according to official estimates and a notable improvement from the weak 1. 2% expansion recorded in 2023 as a whole.
And in terms of inflation, economic forecasters are now striking a different tone compared to the start of 2023. While the maximum increases in the notional value would persist until 2023, they now expect inflation to slow in 2024.
With global headwinds continuing to cause uncertainties, and the fully implemented hike in the Goods and Services Tax (GST) and increases to other charges keeping household costs elevated, experts say high prices will remain “sticky”.
This comes as analysts keep an eye on what could be the major event for the global economy in 2024 if the U. S. Federal Reserve is forced to take action. The U. S. government has been raising interest rates in the U. S. In the wake of the Covid-19 health crisis, the U. S. is adjusting course and making cuts. rates for the first time since the pandemic.
If that happens, interest rates on bank loans will most likely fall, as local lenders follow the U. S. central bank’s lead.
All this means that until 2024 young Singaporeans want to remain cautious with their spending.
Said Brian Lee, an economist at Maybank Securities Singapore: “Even as borrowing costs and inflation cool in 2024, this does not mark a return to the benign price and interest rate environment of pre-pandemic days.”
“In the face of a persistently high inflationary environment, young adults will likely want to continue to control their lifestyles and spending, and plan their budgets carefully. “
TODAY I spoke to economists and monetary experts about their expectations for the global and domestic economies, and how young Singaporeans can navigate them.
Slow growth and falling inflation, still “sticky”
The world economy is “limping”, Singapore’s development is faster and “slower”
Economic experts expect the global economy to slow next year, albeit to the point of a recession.
The Organisation for Economic Co-operation and Development, in its November 2023 Economic Outlook, forecasts that global GDP will grow to 2. 7% in 2024, a “slight” slowdown from the 2. 9% forecast for 2023.
In October, the International Monetary Fund forecast that the expansion would slow from 3% in 2023 to 2. 9% in 2024.
Its economic adviser, Pierre-Olivier Gourinchas, highlighted how the global economy has managed to continue growing, albeit slowly, in the face of disruptions in energy and food markets and global financial constraints to combat inflation.
“The global economy is limping along, or accelerating,” he said.
Selena Ling, OCBC’s head of treasury and strategy, said in the bank’s Global Outlook report in November: “At this stage, a slowdown in global expansion is expected in 2024, but recession dangers have diminished since early 2023. “
Standard Chartered, in its 2024 report, said: “The global economy will be able to achieve a comfortable landing after the most competitive financial tightening cycle in years, even as dangers abound. “
Song Seng Wun, economic representative of economic provider CGS-CIMB, said that the global economic expansion can generally be expected to be “uneven” in 2024, as the lagged effect of restrictive economic policies implemented in recent years “dampens income and investment. “up to a point. “
On the other hand, Singapore’s economic growth is expected to grow at a faster pace in 2024 than in 2023, possibly looking like a reversal of fortunes regarding the global economy.
In November, the Ministry of Trade and Industry forecast that GDP expansion for 2024 would be between 1 and 3 percent, while the world’s major economies are expected to do so gradually in the second part of the year.
But the banks report that this is due in part to “favourable base effects”, or in other words, it is because 2023’s economy was not a great one to improve from in the first place.
In December, private sector economists lowered their 2024 growth expectations for Singapore to 2.3 per cent, according to the Monetary Authority of Singapore (MAS) quarterly survey, down from their initial forecast of 2.5 per cent in September’s survey.
Edward Lee and Jonathan Koh, economists at Standard Chartered Bank Singapore, said: “Singapore’s expansion may only remain slow in 2024. “
The bank forecasts that the country’s economy will grow by 2. 6% in 2024, to a projected expansion of 1% for the whole of 2023.
Maybank economists Dr. Chua Hak Bin and Brian Lee said, “There are green shoots in exports and manufacturing, which improves the outlook. “
This, in turn, is supported by a recovery in global demand for electronics and a “stronger than expected” recovery in Chinese demand for imports from Singapore, despite the weakness of the former’s economy.
“Trade-related and outward-oriented services sectors, including wholesale trade and financial services, will revert to positive growth in 2024,” they added.
Lower ‘persistent’ inflation
By 2024, the MAS expects headline inflation to average between 3 and 4 percent constant, while core inflation is expected to average between 2. 5 and 3. 5 percent constant. This is lower than the official forecast for 2023, which said headline inflation would hover around a steady five per cent. with inflation of 1% and core inflation of around 4%, consistent with the centimos.
Core inflation excludes accommodation and transportation costs.
Banking economists also have forecasts. The UOB forecasts headline and core inflation for 2024 to be 3. 5 percent and 3 percent respectively, while the OCBC forecasts 3. 4 percent for headline inflation and 3. 1 percent for core inflation. This year.
In its Global Outlook report for the first three months of 2024, UOB expects Singapore’s core inflation to moderate further as global food prices continue to recede while services inflation eases as wage growth slows in 2024.
“The effect of the 1 percentage point increase in the GST (from 1 January) will likely keep the core CPI (consumer value index) in 2024 above the long-term average of 1 per cent and may only come close in 2025. aided by the underlying effects of the GST increase,” the report adds.
Andre Toh of professional firm EY highlighted that Singapore’s economy is underpinned by a tough and tight labour market, with most sectors seeing a sharp increase in employment figures. This, in turn, supports domestic demand, he said.
“Given income and points like the GST increase, core inflation is expected to be around 3 percent,” said Toh, who heads the ASEAN and Asia-Pacific assessment, modelling and economics.
Meanwhile, Ling of OCBC said: “While headline and core inflation have largely eased in line with expectations in the second half of 2023, there are some pricing pressures to keep an eye on.”
This would come with increases in GST and carbon taxes, as well as higher water costs and conservation and municipal services fees.
“External inflation drivers, namely raw material costs, energy costs (taking into account OPEC source constraints and the Israel-Hamas conflict) and food costs (given El Niño, idiosyncratic export bans, and ongoing geopolitical tensions) remain in the spotlight, even if the benchmark effects from a year ago are still favorable,” he added.
Moderate fees
With the US expected to cut the Federal Reserve’s rates in 2024 after aggressively hiking interest rates since March 2022, Singapore banks are also expecting a fall in the 3-month compounded Singapore Overnight Rate Average (Sora) rate next year — a benchmark for various loans.
Singapore’s interest rates are not set through the MAS, which manages financial policy by adjusting exchange rate parameters. In the past, economists have told TODAY that interest rates in Singapore are roughly in line with those set through the US central bank.
For example, Maybank economists expect the 3-month Sora rate to rise from 3. 8% in 2023 to 3. 25% until the end of 2024 and 2. 6% until the end of 2025.
“This implies Fed rate cuts of -75 core issues in 2024 and -100 core cuts in 2025,” they said in their outlook report.
The UOB forecasts that the 3-month Sora will go from 3. 75% on November 30, 2023 to 3. 72% in the first quarter of 2024 and 3. 28% in the last quarter of the year.
Fiscal prudence, proactive financial planning important for young adults
Faced with such a dubious diagnosis for 2024, economists and monetary experts unanimously insist on the importance of caution among young adults.
Song reiterated that the expected drop in inflation in 2024 means that already high prices will continue to rise, albeit at a slower pace than in 2023.
“(An item) used to go from S$1 (RM3. 47) to S$2, and now it’s S$2 to S$2. 10,” Array said, adding that this does not mean that the value of the item has gone down. at S$2. 10. 1. 50.
Added to this are the global dangers that young adults deserve to prepare for by saving for a safety net, economists say.
Clare Tay, head of wealth client engagement at Standard Chartered Bank Singapore, added: “Beyond ensuring that they have sufficient emergency funds, young adults can seek out measures to prevent inflation from eroding the value of their savings.
“These can range from government spending and term deposits to budgets with strong returns. “
As for expectations that bank interest rates will fall next year, Song said the effect will vary depending on each individual’s situation.
“If you’re a borrower, it’s ‘baik’ (Malaysian forever); If you want to borrow money, it may be less expensive next year,” he said.
On the other hand, other people who save their money in the bank can “try to get the (interest) rate for as long as possible,” he added.
A potentially low interest rate doesn’t mean Americans are rushing to buy, warned Timothy Ho, co-founder and editor-in-chief of investment site Dollars and Sense.
“Rushing a purchase in anticipation that things may become most costly in the future isn’t a wise decision,” he said.
Rather, it is “crucial” to the affordability of long-term purchases, especially given the unpredictable monetary stability in the existing economic climate, he said.
For those who already have home loans, take a proactive attitude of continually researching the most productive interest rates in the market.
“An active increase in interest rates can lead to significant savings over the life of your loans. By doing so, they can manage their monetary obligations more successfully and potentially reduce the overall cost of their mortgage,” he said.
Generally, Singaporeans looking to invest to grow their wealth focus on diversified medium- to long-term portfolios, experts said.
“This will lessen the mental load of constantly monitoring or trying to time the market,” said Tay.
Ho added that such a technique remains “the optimal method” to increase investment, in bad times and in bad times.
“In addition, the past few years have highlighted the unpredictable nature of markets, confirming the need to invest wisely,” he said.
This can be done by averaging dollar charges, or by investing a consistent amount of cash regularly, regardless of the state of the market, rather than looking at the market time.
“This technique is helping to smooth out the value of the purchase over time, lessen the effect of market volatility and potentially lead to better investment results in the long run. “-TODAY