MAS: Singapore Must Prepare for Slower Growth Amid Higher Costs

The Monetary Authority of Singapore (MAS) warned in its semi-annual macroeconomic review that Singapore is likely to face a "slower long-run growth path" with increased costs. This trajectory will depend heavily on total factor productivity (TFP) gains.

Capital Accumulation and TFP
Singapore has experienced robust growth primarily through capital accumulation and some TFP gains. Capital stock has shifted towards information and communications technology assets, contributing significantly to GDP growth. Labor quality improvement has also supported TFP growth.

Cost Pressures
While Singapore has managed growth alongside modest increases in business costs, sustaining this path will become more challenging. Global cost headwinds, including supply-side constraints and rising import prices, may impact Singapore. Domestically, labor and unit labor costs are expected to rise, especially in sectors with tight labor constraints.

Adapting to Higher Costs
As costs increase, businesses may need to adjust, potentially offering higher-quality goods and services. MAS emphasizes the importance of sustaining productivity gains through openness, dynamism, and innovation to offset rising costs and maintain competitiveness.