However, MAS warned that headwinds could persist for the near-term outlook for the global technology sector.
“First, a widespread economic slowdown in major economies could dampen final demand for consumer and business IT products and, in turn, chip orders.”
In particular, China, the world’s largest chip market, has been a major drag on global chip sales since the third quarter of 2022.
MAS added that the technology war between the US and China remains a risk.
“October 2022, initially focused on cutting-edge chips for advanced technologies such as AI and supercomputing, but restrictions imposed by both sides have since led to restrictions such as 5G network infrastructure. It has expanded to include equipment and materials for manufacturing chips for a broader range of strategic applications such as , smartphones, and EVs.
As a result, “some domestic players could be adversely affected by disruptions to material supplies and export markets if current restrictions widen, become more stringent and prolonged than expected,” MAS said.
MAS said another industry that could benefit from an improvement in the overall global macro environment would be the financial sector.
MAS said the domestic financial sector is showing early signs of recovery, with inflation peaking in countries such as Singapore, and could see a gradual recovery until 2024.
The central bank said actual inflation-adjusted value added by the financial sector has been lackluster so far this year.
“Amid the high interest rate environment, lending to both residents and non-residents continues to decline. Similarly, fee income for banks, insurance companies and fund managers is meager.”
The MAS said the central bank is moving towards lower-risk, shorter-duration products such as term deposits and Treasury bills (roughly equivalent to cash), and as a result “Demand for high-risk investments has declined,” MAS said. .
MAS said weak external demand and difficult financial conditions will continue to weigh on the financial sector, while interest rates are expected to peak by the end of this year and fee income could rise in 2024.
Given that Singapore uses its local currency as its main monetary policy instrument, Singapore interest rates are expected to track US rates and moderate over the next two years.
Based on the Federal Reserve’s median forecast as of September 2023, the federal funds rate will peak at 5.6% at the end of 2023, slowing to 5.1% in 2024 and 3.9% in 2025. It is expected.
“Easing interest rates could trigger changes in asset allocation behavior, such as increased rotation away from short-term cash equivalents into fixed income and equity funds. This could support fee income for banks and fund management units. Deaf,” MAS said.