QNB Group, in its Singapore Economic Insight 2015, has examined recent developments and the outlook for the Singaporean economy as it tackles the First World challenges of ageing population, reduced immigration, inequality, and slow global growth.
Real GDP is expected to increase from 2.2% in 2015 to 2.3% in 2016 and further to 2.9% in 2017 as domestic demand picks up, but should remain below potential due to external headwinds, the QNB report said.
Domestic demand is projected to rise as the correction in the housing market should approach its end in 2017, releasing some personal consumption. But the external environment should continue to weigh on Singapore as global growth is forecast to remain below pre-crisis levels and the slowdown in China continues, it added.
QNB said inflation is forecast to be negative in 2015, averaging -0.3%, but should rise to 0.7% in 2016 and 1.8% in 2017 with the gradual recovery in oil prices.
Falling housing prices should contribute to the decline in inflation in 2015 and 2016 but its impact is forecast to fade away in 2017, the report said. It added that subdued inflation is expected to persist despite labour market tightness pushing up wages, as the pass-through to consumer prices should remain limited on weak demand.
The fiscal surplus, according to QNB, is projected to rise gradually from 1.2% of GDP in 2015/16 to 2.2% in 2016 and 2.3% in 2017/18 but should remain below pre-2015 levels.
Higher levels of expenditure are expected in the future due to increased spending on training, education, and infrastructure to boost productivity; and on healthcare as a result of the ageing population. The continued surpluses and lower savings should lead to lower government debt issuance with public debt forecast to fall from 100.1% of GDP in 2015 to 96.6% in 2017, the report said.
QNB said credit growth is expected to bottom out in 2015 at 4.1% before rising to 11.1% in 2016 and 12.9% in 2017 as the correction in the housing market approaches its end and the global economy recovers.
It added that growth in credit facilities is forecast to drive asset growth, while higher expected interest rates should boost deposit growth. Also, QNB said non-performing loans are expected to increase marginally from very low levels, which could impact profitability.