Expansionary fiscal policy suggests the Monetary Authority of Singapore will maintain its neutral policy stance at April's semi-annual meeting
In a pleasant surprise, Singapore’s 2018 Budget released today did not include the most anticipated Goods and Service Tax hike from this year. The rumoured two percentage point hike in the GST to 9% (phased over two years) was postponed by the government to sometime between 2021 to 2025, although it would still be dependent on the state of the economy, the buoyancy of taxes and expenditure growth. However, the authorities would still bring e-services (not e-commerce for goods) from overseas suppliers under the GST net from 2020.
Persistent weak domestic demand undermines official optimism on 2018 growth outlook
Consistent with our forecast, Thailand joined the majority of Asian economies in posting an economic slowdown in the final quarter of 2017. At 4.0% year-on-year in 4Q17, GDP growth came in below the consensus forecast, which was centred on an unchanged pace of 4.3% posted in 3Q17 (ING forecast 3.9%). A moderation of both exports and industrial production growth, as well as persistent weak domestic spending, were behind our below-consensus 3.9% forecast.
The slowdown from 3Q17 was broad-based. The contribution of all main domestic spending components – private consumption, government consumption and gross fixed capital formation – to headline GDP growth narrowed. The same was true for net exports despite an acceleration in trade growth. Inventories remained the main expenditure-side driver of GDP growth, accounting for more than half of the GDP growth in the last quarter. On the industry side, agriculture and manufacturing were the main drags.
Singapore's growth-friendly budget for 2018 suggests no change to the central bank's neutral policy stance at April's semi-annual meeting. Slowdown in Thailand's economic growth reinforces consensus forecast of stable central bank policy through 2018