The escalation of trade frictions, including the higher tariffs from the US and retaliatory measures by some of its trade partners, will have "serious ramifications" for the global economy, the Monetary Authority of Singapore (MAS) warns in its macroeconomic review for April 2025.
"Economies that levy duties on imports will likely experience an increase in costs, which will in turn weigh on business and consumer spending. Meanwhile, exporting countries which have been hit by the US tariffs will experience a negative externally induced shock on export production," the central bank notes in the review released April 28.
It adds that further downward pressure on growth may happen as businesses and households are likely to defer their investments and discretionary spending amid heightened policy uncertainty and the broader tightening of financial conditions, which will lead to further downward pressure on growth.
Should the US widen and intensify its tariffs to include other specific products such as semiconductors and pharmaceuticals, global growth could slip further, says MAS, adding that global GDP growth is expected to slow from 3.2% in 2024 to between 2.0% to 2.5% this year.
On April 22, the International Monetary Fund (IMF) also lowered its global output growth estimate to 2.8% in its latest World Economic Outlook, down from 3.3% in its January outlook.
While global headline inflation is expected to increase by 0.2 percentage points y-o-y to average 2.3% this year, the MAS believes the impact on price pressures should remain contained. Commodity prices are expected to ease on the back of softer global demand and positive supply-side factors including the planned oil supply increases by OPEC countries and favourable weather conditions for food production, says the central bank.
See also: Singapore GasCo set up to centralise natural gas imports; ex-Pavilion Energy's Alan Heng named CEO
China's disinflationary pressures could also persist due to the subdued consumer confidence and significant economic slack.
The central bank also sees domestic price pressures in Asean to remain "modest" due to below-trend growth.
Singapore's growth outlook turns more cautious
The growth outlook for Singapore has become more cautious amid an increasingly challenging global trade environment, says MAS.
"The impact of the tariffs will propagate through multiplier effects and generate a broader negative income and demand shock to the Singapore economy," the central bank adds, noting that GDP growth will also be impacted by the continuing uncertainty.
On April 14, the Ministry of Trade and Industry announced that it had downgraded Singapore's GDP forecast this year from 1.0% - 3.0% to 0% - 2.0%. MTI cited the US tariffs and ongoing trade war, which is "expected to weigh significantly on global trade and global economic growth", as the reasons behind the downgrade.
Beyond the direct impact on the reciprocal tariffs, Singapore will also be indirectly affected by the tariffs slapped on the region.
"Reciprocal tariffs account for the bulk of the direct tariff impact on Singapore. The US is Singapore's second largest market, accounting for 11% of Singapore's domestic exports in 2024," notes MAS. "Products subject to the baseline tariff accounted for about 55% of Singapore's domestic exports to the US, with product-specific tariffs on steel, aluminium, and automobiles & parts comprising a much smaller share of around 5%."
"Although exempted products such as semiconductors, consumer electronics and pharmaceutical goods, which account for about 40% of Singapore's domestic exports to the US, are currently not subject to tariffs, the US administration has initiated trade probes into imports of these goods on national security concerns and could impose restrictions in the coming months," it adds.
The same reciprocal tariffs imposed on the region will also impact Singapore through its trade linkages.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
"This indirect exposure can be proxied by Singapore's value-added (VA) embedded in US imports from partner economies, using the OECD's Trade in Value Added data," says MAS. "China is Singapore's largest export market and also accounts for an important share in US imports, which are currently subject to an exceptionally high tariff rate."
"There are also other indirect spillovers through regional economies including those via Asean, given Singapore's importance in production and trading supply chains that leverage on its hub role in areas such as transport and financial services," MAS adds.
Among the sectors, Singapore's external-facing industries, such as the information technology (IT) industry, will be the most affected.
As it is, the growth momentum in chip sales had eased slightly towards the end of 2024, partly due to falling prices, notably in the low- to mid-range memory chip market. However, the central bank believes demand driven by artificial intelligence (AI) will provide some underlying support to the global semiconductor industry, as the shift towards more advanced and computationally costly algorithms drive the need for high-performance hardware.
Growth in modern services is also expected to ease from last year as investor risk appetites deteriorated along with the large gyrations in asset valuations and volatility spikes across financial markets.
"Consequently, should investors shift towards more passive investment strategies, weaker trading activity would dampen the net fees & commissions of the banks, fund management, forex, and security dealing segments in Singapore," says MAS.
"The uncertain economic backdrop could also curtail firms' capital investment spending and constrain credit intermediation activity," it adds.
That said, the central bank believes other modern services segments such as information & communications, are expected to register "firm growth", with digital transformation of businesses driving demand for data and cloud services.
Finally, domestic-oriented sectors will continue to provide an underlying base of activity in the economy. The construction sector, in particular, has a strong pipeline of projects this year with firms leveraging on government support and adopting solutions such as robotics, digitalisation and sustainability advancements to boost productivity.
At the same time, consumer-facing industries such as retail and food & beverages (F&B) may continue to face a challenging operating environment due to high labour costs, cautious consumer sentiments and increased competition.
"Nevertheless, net firm formation in the F&B industry appears to be on a mild uptrend, as the industry continues to reinvent itself," says MAS.
