Speeches  Published Date: 01 September 2022  “An Update on the Global and Domestic Economic Conjuncture” – Summary of Remarks by Mr Edward Robinson, Deputy Managing Director (Economic Policy) & Chief Economist, MAS, at a Citibank Macro Fireside Virtual Event on 1 September 2022 Summary of remarks on the Global and Domestic Economic Conjuncture Global Economic Developments: A Narrow Ridge to a Soft Landing Aggregate demand-supply imbalances continue to engender elevated inflation rates across many economies. However, tighter financial conditions, including from higher policy interest rates, coupled with fresh uncertainties, are imparting a moderating effect on demand among the advanced economies. This should dampen the pace of future price increases but still leave inflation somewhat elevated for a while. These ongoing global inflation-growth shifts present challenges for the calibration of the monetary policy stance. The perceived stridence of the recent Jackson Hole discussions belies a complex calculus confronting central banks. The path forward for the global economy can be cast in terms of a narrow ridge that needs to be traversed to achieve a soft landing, in which inflationary pressures recede with further rate hikes to a level above the neutral rate of interest. In this scenario, growth slows, but the current (positive) output and (negative) unemployment gaps do not reverse and widen materially. It is useful to illustrate these considerations with respect to the US economy. The ridge to a soft landing in the US appeared to reach a more challenging turn during the early to mid-summer.

Manufacturing activity is slowing after a robust showing throughout 2021. The travel-related and domestic consumer-facing sectors are strong, as domestic mobility indicators have returned to pre-COVID levels. It is estimated that domestic economic output has reached close to its pre-pandemic trajectory (i.e., the present level of GDP envisaged in January 2020). Singapore’s GDP growth is likely to come in between 3 and 4% this year, which would bring the average pace of expansion over 2021-22 to around 5.5%. This outlook is strongly predicated on the prospects for Singapore’s three main final demand markets – China, ASEAN-5 and the US. [2] Growth will be led by the domestic-oriented and travel-related sectors, while the contribution of the trade-related sectors could retract from last year. Ongoing costs pass-through Core inflation rose to 3.8% y-o-y in Q2, reflecting both imported cost-push and broader demand-pull pressures. Core inflation is expected to remain elevated this quarter, as previous global cost shocks continue to transmit through the domestic economy. With domestic demand picking-up amid a tight labour market, consumer services inflation is likely to feature more prominently. Several results from the econometric work done by the Economic Policy Group in MAS are notable:  First, global food and energy shocks impact headline inflation within one quarter of the shock and continue to pass through to final prices for at least the next six months. Second, domestic cost increases as proxied by wages in the services sector pass through moderately to prices mainly within the following quarter.