SINGAPORE, Jan 2 — It may seem like the dark clouds looming over Singapore's post-pandemic economy in 2023 might finally dissipate in 2024, but that does not mean that people should stop being prepared for rain.

Experts are predicting that the Republic's economy will grow faster this year by between 1 to 3 per cent, in line with official estimates and a notable increase from the sluggish 1.2 per cent growth recorded in the whole of 2023.

And when it comes to inflation, economic forecasters are also singing a different tune now compared to the start of 2023. Whereas most said that the rise in prices were expected to persist in 2023, they now expect inflation in 2024 to cool slightly.

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 close watch on what could be the big story for the world's economy in 2024 if the United States Federal Reserve, which has steadily raised interest rates in the US following the Covid-19 health crisis, reverses tack and cut rates for the first time since the pandemic.

Should that happen, bank lending rates here are expected to cool, since local lenders take a cue from the US central bank.

What all of this means is that for 2024, young Singaporeans need to remain prudent about what they spend on.

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 still elevated inflationary environment, young adults may still need to continue watching their lifestyles and spending, and plan their budgets carefully,”

TODAY spoke to economists and financial experts about their expectations for the global and domestic economies, and how young Singaporeans can best navigate them.

Slow growth, inflation easing but still ‘sticky’

Global economy ‘limping’, Singapore grows faster but ‘sluggish’

Economic experts expect the global economy to slow down next year, though not to the point of a recession.

The Organisation for Economic Co-operation and Development in its Economic Outlook report published in November 2023, projects the world GDP to grow at 2.7 per cent in 2024, a "mild” slowdown from 2.9 per cent it projected for 2023.

In October, the International Monetary Fund forecast global growth to slow from 3 per cent in 2023 to 2.9 per cent in 2024.

Its economic counsellor Pierre-Olivier Gourinchas noted how the global economy managed to continue growing, albeit slowly, when faced with disruption in energy and food markets and tightening of global monetary conditions to combat inflation.

"The global economy is limping along, not sprinting,” he said.

Selena Ling, the head of treasury research and strategy at OCBC, said in the bank’s Global Outlook report in November: "At this juncture, a global growth slowdown is anticipated for 2024, but the recession risks have ebbed from early 2023.”

Standard Chartered, in its 2024 report, said: "The world economy should be able to achieve a soft landing after the most aggressive monetary tightening cycle in years, although risks abound.”

Song Seng Wun, economic consultant at financial service provider CGS-CIMB, said that overall, an "uneven” global economic growth can be expected in 2024, as the lag effect of the restrictive monetary policies put in place in recent years "curb, to some extent, consumption and investment”.

Singapore’s economic growth, on the other hand, is expected to grow at a faster pace in 2024 than it did in 2023, which may seem like a reversal of fortunes from that of the global economy.

The Ministry of Trade and Industry in November projected GDP growth for 2024 to come in at 1 per cent to 3 per cent as major global economies are expected to pick up gradually in the second half 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 growth may improve in 2024 but remain sluggish.”

The bank predicted the economy here to grow by 2.6 per cent in 2024, up from 1 per cent growth it projected for the whole of 2023.

Economists from Maybank, Dr Chua Hak Bin and Brian Lee, said: "Green shoots are sprouting in exports and manufacturing, brightening the outlook.”

This in turn is supported by a recovery in global electronics demand and a "more strongly than expected” recovery in China demand for imports from Singapore, despite the former’s sluggish economy.

"Trade-related and outward-oriented services sectors, including wholesale trade and financial services, will revert to positive growth in 2024,” they added.

Lower but ‘sticky’ inflation

For 2024, MAS expects overall inflation to average 3 to 4 per cent, while core inflation is expected to average 2.5 to 3.5 per cent. This is down from 2023's official forecast of headline inflation of around 5 per cent and core inflation of around 4 per cent.

Core inflation excludes accommodation and private transport costs.

Bank economists also have similar forecasts. UOB predicts 2024 headline and core inflation to come in at 3.5 per cent and 3 per cent respectively, while OCBC forecasts 3.4 per cent for headline inflation and 3.1 per cent 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 GST hike (from Jan 1) is likely to keep 2024 core CPI (Consumer Price Index) above the long-term average of 1.8 per cent and may inch closer only in 2025, aided by base effects from the GST hike,” the report added.

Andre Toh from professional services firm EY noted that Singapore’s economy is underpinned by a tight labour market with most sectors seeing a net rise in employment figures. This, in turn, supports domestic demand, he said.

"Given strong consumption and factors such as the GST hike, core inflation should be around 3 per cent,” said Toh, who heads Asean and Asia-Pacific valuation, modeling and economics at the firm.

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.”

These would include the GST and carbon taxes hike, as well as rising water prices and town council service and conservancy charges.

"External inflation drivers, namely commodity prices, especially energy prices (given the OPEC+ supply curbs and Israel-Hamas conflict) and food prices (given El Nino, idiosyncratic export bans, and persistent geopolitical tensions) remain in the spotlight, even though the base effects from a year ago remain favourable,” she added.

Moderating interest rates

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 interest rates are not set by the MAS, which manages monetary policy by adjusting exchange rate settings. Economists have previously told TODAY that interest rates in Singapore roughly track those set by the US central bank.

For example, Maybank economists are expecting the 3-month Sora rate to fall from the 3.8 per cent in 2023 to 3.25 per cent by end-2024 and 2.6 per cent by end 2025.

"This is predicated on -75 basis points of Fed rate cuts in the second half of 2024 and -100 basis points bps of cuts in 2025,” they said in their outlook report.

UOB is projecting the 3-month Sora to fall from 3.75 on November 30, 2023, to 3.72 per cent by the first quarter of 2024, and to 3.28 by the last quarter of the year.

Fiscal prudence, proactive financial planning important for young adults

With such an uncertain prognosis for 2024, economists and financial experts unanimously stressed the importance of prudence for young adults.

Song reiterated that the expected lower inflation in 2024 still means that prices, which are already elevated, are still rising, albeit at a slower rate than in 2023.

"(An item) had gone from S$1 (RM3.47) to S$2 before, and now it’s from S$2 to S$2.10,” he said as an illustration, adding that it does not mean the item’s price has gone down to S$1.50.

This is coupled by the various global risks, for which young adults should prepare for by saving up for a safety net, said economists.

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 bills and time deposits to funds that offer a stable return.”

As for expectations that bank interest rates will go down next year, Song said the impact would vary based on an individual’s circumstances.

"If you’re a borrower, this is 'baik' (Malay for good); if you need to borrow money, it might be cheaper next year,” he said.

On the other hand, people who save their money in the bank may "try to lock in the higher (interest) rate for as long as possible”, he added.

A potentially lower lending rate does not mean individuals should rush into buying, cautioned Timothy Ho, co-founder and managing editor of investing website Dollars and Sense.

"Rushing a purchase in anticipation that things may become most costly in the future isn’t a wise decision,” he said.

Instead, it is "crucial” to consider the long-term affordability of purchases, especially given the unpredictable financial stability in the current economic climate, he said.

For those with existing home loans, he recommended a proactive stance of continuously searching for the best interest rates in the market.

"Actively seeking better interest rates can potentially lead to significant savings over the lifespan of their loans. By doing so, they can manage their financial obligations more effectively and possibly reduce the overall cost of their mortgage,” he said.

Overall, Singaporeans who are looking to invest in order to grow their wealth should focus on mid to long-term diversified portfolios, said the experts.

"This will lessen the mental load of constantly monitoring or trying to time the market,” said Tay.

Agreeing, Ho added that such an approach remains "the optimal method” to grow investment, through both good and challenging times.

"Moreover, the past few years have underscored the unpredictable nature of markets, further validating the need for a cautious approach to investing,” he said.

This can be done through dollar-cost-averaging — or regularly investing a fixed sum of money, irrespective of the market's state — instead of attempting to time the market.

"Such an approach helps in smoothing out the purchase price over time, reducing the impact of market volatility, and potentially leading to better long-term investment outcomes.” ― TODAY