TAKEAWAYS
As Singapore enters 2025, it does so at a pivotal moment, balancing external challenges and internal milestones. The global economy faces uncertainties spanning US economic policies under President Trump’s second term, China’s evolving trajectory, geopolitical tensions, and a potential resurgence of inflation that could disrupt monetary easing plans. Domestically, Singapore celebrates SG60, marking six decades of independence and offering a moment for reflection and strategic recalibration while weighing the changing aspirations of households and businesses.
First off, President Trump’s second term may introduce renewed volatility in global trade and economic policy. Key among these are tariffs targeting China and other economies, which could potentially disrupt supply chains and challenge trade-dependent nations. The continuation or escalation of these tariffs could weigh heavily on global growth, particularly in Asia, where many economies are interlinked with China’s manufacturing and export networks. While Singapore has a Free Trade Agreement with the US, President Trump’s pointed remarks about additional tariffs on Canada and Mexico suggest that anyone is fair game. Back in his first term, President Trump had also replaced the North American Free Trade Agreement (NAFTA) with the US-Mexico-Canada (USMCA) Agreement in 2020.
Additionally, US monetary policy remains a critical factor. The Federal Reserve started with a jumbo 50-basis point (bp) rate cut in September 2024, followed by another two 25bps cut in 4Q24 amid cooling inflation. However, the Fed is currently signalling fewer cuts this year due to caution, as the Trump administration may usher in sweeping policy changes to trade, tax and immigration which could impede the needed progress on slowing inflation. If the Fed delays or reverses its rate cut trajectory, this could translate to tightening global liquidity and increasing borrowing costs for emerging markets, including Singapore.
Meanwhile, China’s economic slowdown, coupled with its ongoing property sector struggles and efforts to rebalance its economy, adds another layer of complexity. For Singapore, whose trade ties with China are deep, any prolonged slowdown could dampen exports, reduce tourist arrivals, and curtail Chinese investments. That said, China’s holistic policy stimuli effort has paid off in 2024, likely lifting growth close to its 5% target. Assuming President Trump proceeds with the punitive 60% trade tariffs on imports from China, more Chinese policy stimuli will be needed. Taking a longer-term perspective, Singapore remains well-positioned to benefit from China’s push towards high-tech innovation and sustainability, which aligns with Singapore’s long-term economic priorities. However, sustained strategic rivalry between major economies like the US and China may mean further polarisation of trade, industry and technology.
Rising geopolitical tensions are reshaping economic linkages, supply chains and business models. While existing conflicts in Ukraine and the Middle East have simmered on, there may be other hotspots that could emerge and threaten global/regional stability by disrupting trade routes and hiking costs for businesses. Singapore, with its strategic position and reputation for neutrality, must carefully navigate these dynamics while safeguarding its role as a global trade and financial hub.
Last year (2024) was a remarkable year as the Singapore economy zipped to a 4% year-on-year (YoY) growth, the highest since 2021. This exceeded the official growth forecast and was partly attributed to the 4Q24 growth momentum surprising at 4.3% YoY (0.1% QoQ sa) even though this was a moderation from 3Q24’s 5.4% YoY (3.2% QoQ sa) growth. The growth levers were broad-based across manufacturing, construction and services, which expanded 4.2%, 5.9% and 4.3% YoY respectively in 2024. Both headline and core inflation have eased while the domestic labour market also gradually cooled.
Notwithstanding the blockbuster year in 2024, the 2025 outlook is still largely obscured by external headwinds including the expected Trump 2.0 tariffs, US-China strategic rivalry, and geopolitical tensions. The official 2025 GDP growth forecast remains at 1% to 3% YoY, while my forecast has been shaded down to 2.2% YoY due to the higher growth base in 2024.
While there is increased optimism about the global electronics improvement, trade sentiments may remain on edge with Trump’s inauguration on January 20. He is widely expected to enact wide-ranging and possibly punitive tariffs on trade with China and also the rest of the world. While there is still significant uncertainty about the timing and magnitude of the anticipated tariffs, 1Q traditionally sees a moderation in activity due to the Chinese New Year holidays. While the broad manufacturing sector may find some mitigating support from additional global supply chain recalibrations, the electronics frontloading activity may possibly take a temporary breather.
On the inflation front, the Monetary Authority of Singapore tips the 2025 headline and core CPI at 1.5% to 2.5% YoY. The trade-weighted Singapore dollar has also pulled back in recent months. With inflation risks more balanced, a monetary policy easing may be on the cards this year.
The SG60 celebrations in 2025 offer a moment to reflect on Singapore’s remarkable journey and chart a course for the future. As the nation commemorates its 60th year of independence, it must address pressing socioeconomic challenges while reinforcing its competitive edge. SG60 is not merely a celebration but an opportunity to galvanise the public and private sectors around a shared vision for sustainable and inclusive growth.
The Singapore government’s fiscal response will be crucial in 2025. Increased spending on infrastructure, digital transformation, and green initiatives can stimulate economic activity and create jobs. The SG60 celebrations also provide an opportunity to invest in cultural and community projects that enhance national identity and cohesion. However, fiscal prudence remains vital. With the country’s aging demographics and rising healthcare costs, Singapore must balance short-term stimulus with long-term sustainability.
The government’s focus on upskilling workers and fostering innovation will be pivotal in addressing structural challenges and ensuring resilience against external shocks. At the same time, the push for digitalisation and sustainability requires individuals to adapt and acquire new skills. This transition can be daunting, particularly for older workers. As such, all eyes will be on Budget 2025, due on February 18, where expectations are running high as this is likely to be the final budget for this term of government, and as Singapore marks its SG60 celebrations. Given the buoyant revenue collections from corporate and personal income taxes, Goods and Services Tax, as well as Vehicle Quota Premiums, just to name a few, Budget 2024 is likely to see a bumper surplus that could pave the way for a generous Budget 2025 which marks the last budget for this current term of government.
Selena Ling is Head of Research and Strategy, OCBC Bank.
© 2024 Institute of Singapore Chartered Accountants
