Singapore’s economy is heading towards a prolonged period of slower growth, with rising costs expected to become a significant challenge. The Monetary Authority of Singapore (MAS) highlighted these concerns in its latest macroeconomic review, noting that future growth will likely depend heavily on total factor productivity (TFP) gains.

In the past, Singapore successfully maintained strong GDP growth without a sharp rise in labor costs. However, this trend is expected to change. Singapore’s growth has been fueled by capital accumulation, particularly in information and communications technology, contributing nearly half of GDP growth from 2020 to 2023. The growth in labor quality has also boosted productivity, making up about a quarter of GDP growth in that period.

Despite these gains, sustaining growth without a significant increase in business and labor costs will become more difficult. Global economic conditions, such as supply-side constraints and rising international prices, will add to domestic pressures. Higher import costs, labor shortages, and sector-specific constraints could push wages and prices up more quickly compared to other countries.

MAS emphasized that while the tradable sector may adjust by moving towards higher-value activities, businesses in the non-tradable sector may struggle to absorb the rising costs. However, MAS remains optimistic, suggesting that higher wages driven by technological improvements could foster a cycle of growth and competitiveness.

Singapore’s long-term economic success will depend on maintaining openness, innovation, and dynamism, which are crucial for sustaining productivity improvements and managing the inevitable cost increases.