In H1 2022, growth has continued and broadened across sectors, coming in at 4.4% on a year-on-year basis. The economy is currently 6% above its pre-pandemic levels. The output gap is positive at 0.6% of potential GDP, meaning the economy is operating slightly above its underlying capacity. The external-oriented sectors such as manufacturing and financial services are facing some headwinds in light of weaker growth prospects in the global economy. But the domestic-oriented and travel-related sectors are performing strongly, benefitting from the easing of mobility and travel restrictions here and in the region. The labour market has tightened and wage growth is running ahead of productivity gains. The seasonally adjusted resident unemployment rate has declined to 3.0%, the lowest rate since end-2018. Yet, total employment is still 2.5% below the pre-pandemic level – mainly because Singapore lost 15% of its non-resident workforce since December 2019. Job vacancies are at record high levels with broad based increases across sectors. The vacancy-to-unemployment ratio is at its highest level since 1998. Resident wages have risen by an average 6.2% year-on-year over the past three quarters, running slightly ahead of real productivity growth of 5.5%. Imported inflation reflecting supply disruptions caused by the Russia-Ukraine war has significantly added to price pressures. Import prices facing Singapore have surged by 27% in May this year, compared to the same period last year. About 80% of this was contributed by higher oil and food prices.
If there are fresh shocks to global energy and food supplies arising from the ongoing conflict in Ukraine or a significant overheating of the domestic labour market, inflation  may end up being higher and more persistent. TAMING INFLATION MEANS SLOWER ECONOMIC GROWTH  The outlook for a gentle easing of inflationary pressures globally is also premised on strong monetary policy actions by central banks. Monetary policy dampens inflation by reducing aggregate demand to be in line with aggregate supply. In most countries, this is achieved through higher interest rates that dampen consumption and investment demand. A slowdown in economic growth is necessary to restore macroeconomic stability and balance. The central banks of the major economies have been tightening monetary policy. The US Federal Reserve has raised interest rates three times since March 2022. The European Central Bank has yet to raise rates but has indicated it will do so this month. The Bank of England as well as the central banks of Canada, Australia and others have also been withdrawing monetary policy accommodation. Central banks are expected to further tighten monetary policy substantially over the next 6 months. Global economic growth in 2023 is likely to be slower. Tighter financial conditions, coupled with a squeeze in real incomes as a result of rising prices, will exert a drag on growth. It is difficult to forecast the extent of the growth slowdown next year given the complex interplay of multiple factors. It may be more instructive to think of possible scenarios.