Singapore Country Risk Report

Singapore has a remarkable track record of economic growth, with an annual average rate of +5.4% in the 2000s and +5% in the 2010s. The economy was severely hit by the Covid-19 crisis, with growth contracting by -3.9% in 2020, followed by a strong rebound of +9.7% in 2021 and moderating to +3.8% in 2022, driven by a rebound in external demand and higher corporate and household confidence. The post-pandemic recovery then came to an end, with growth slowing to +1.1% in 2023 due to softening external demand amid high inflation and a downturn in the electronics cycle. Going forward, we forecast growth to settle at +2.5% in 2024 and +2.2% in 2025 and 2026, driven by solid investment growth while exports are likely to face a mixed outlook. In the medium term, risks to economic growth are tilted to the downside, which include risks such as a global economic slowdown, supply-chain disruptions and rising geopolitical tensions. In the longer term, risks from climate change may weigh on the economic prospects of the economy.

Fiscal policy in Singapore has been supportive during the Covid-19 crisis and pushed the fiscal balance into a deficit of -6.7% of GDP in 2020 – a significant deviation from the pre-pandemic average of +5% of GDP surplus. The economic recovery and the rollback of broad-based supportive measures have brought the fiscal balance back into positive territory since, with a surplus of +1.1% of GDP in 2021, +1.2% in 2022 and +3.6% in 2023. We expect the fiscal balance to rise at +5.2% in 2024 and stabilize at around 4% in 2025, while targeted policies will continue to be rolled out, such as measures for the labor market or support for technology sectors. Medium- and long-term challenges such as an ageing population, risks from climate change and the need to maintain its competitiveness among rising competition from regional peers will constrain the surplus from increasing further.

In terms of prices, after reaching highs in 2022-2023, headline inflation is likely to ease: we expect +2.5% in 2024 and +1.5% in 2025 and 2026 (roughly in line with the pre-pandemic average of +1.7% across 2010-2019). Upside risks remain, mainly arising from elongated supply chains, commodity prices and geopolitical shocks. During the monetary policy tightening cycle across 2021-2023, the Monetary Authority of Singapore (MAS) increased the slope of the of the S$NEER policy band four times and took up the center three times. This policy stance has been helpful in dampening inflation, with inflation expectations remaining well-anchored. We expect the MAS policy stance to pivot in 2025, staying cautious with currency impacts and the upward risks to inflationary pressures.

Singapore offers a prime business environment for corporations, thanks to its liberal landscape in terms of trade and investments, transparent political system, favorable tax policies, solid infrastructure and a strong workforce. The World Bank Institute’s annual Worldwide Governance indicators suggest that the regulatory and legal frameworks are business-friendly and the level of corruption is low. On broadly similar lines, the Heritage Foundation’s annual Index of Economic Freedom Survey 2023 ranks Singapore 1^st out of 185 countries, reflecting strengths in areas such as trade freedom, property rights, government integrity, tax burden, government spending, business freedom, investment freedom, monetary freedom and financial freedom. However, Singapore scores less favorably with regard to environmental sustainability, owing to a very low level of renewable electricity output and a high level of water stress. Overall, Singapore ranks 76 out of 210 economies based on our proprietary Environmental Sustainability Index.

The political landscape in Singapore remains stable, transparent and efficient. The new prime minister, Lawrence Wong, succeeded Lee Hsien Looing in May 2024 (both are from the People’s Action Party, PAP). He will continue to address medium- and long-term challenges such as social inequality, immigration, job-skill mismatches and the perception of an inadequate social safety net, aiming to further boost PAP’s popularity after a mild erosion in its dominance following the election in 2020, when the Worker’s Party (WP) – the main opposition – increased its vote share. Vulnerabilities in the political landscape arise from Singapore’s ethnic diversity, but escalated racial tensions are not likely due to constraints on press freedom and public demonstrations.