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A year ago, Singapore welcomed 2021 hoping the worst of the pandemic was over, with Singapore Prime Minister Lee Hsien Loong hailing “the light at the end of the tunnel” as the city-state launched its vaccination drive.

Since then, new virus variants and Singapore’s worst COVID-19 surge have tempered expectations of a quick reopening, even as the island nation boasts one of the world’s highest vaccination rates. Now, on the cusp of 2022, the global spread of the omicron variant has rekindled concern over setbacks and a reimposition of social curbs — though so far the government is staying the course on reopening.

New challenges like the persistent rise of inflation and a slowing economic recovery will keep eyes focused on how Singapore policy makers react. Investors are also watching how economic policies addressing long-term challenges like climate change and income inequality impact the island’s business-friendly reputation.

Here are some themes and events to look out for in 2022:

Reopening bumps

Singapore’s pivot to a strategy of “living with the virus” was already facing hiccups when a surge in cases this fall led authorities to reimpose local restrictions. In recent weeks, the emergence of omicron has forced authorities to hold off on expanding vaccinated travel lanes to other hubs like Dubai.

Singapore’s reopening flopping before omicron

The rise of omicron “has definitely put a damper on reopening plans and may exacerbate imported inflation, as border controls and heightened hygiene measures also contribute to global supply-chain bottlenecks,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp.

Singapore’s economic recovery was already expected to slow to 3%-5% growth next year, from about 7% this year, according to the trade ministry. Still, most economists remain optimistic about the city-state’s growth prospects as local infections subside.

“We see significant room for catch-up” of vulnerable sectors like tourism and aviation, Nomura Holdings Inc. economists including Euben Paracuelles wrote in a December report.

Electronics and pharmaceuticals production, which are relatively insulated from slower global growth, can continue lifting Singapore’s economy, they said. A rise in vacancies paints a strong outlook for jobs, with the unemployment rate seen dropping to 1.9% next year, below its pre-pandemic level of 2.2%.

Inflation bites

Singapore has avoided the worst of the price rises seen in countries from the U.S. to Brazil, even as supply-chain bottlenecks and a global energy crisis drive up local food and electricity bills.

Most observers expect the central bank to tighten monetary policy again at its April review after core inflation hit its highest level in more than two years last month.

Headline inflation also is expected to continue rising into next year, before moderating. As a trade hub, Singapore could be more sensitive than most to further snarls in global supply chains that could drive up prices around the world.

How aggressive the Monetary Authority of Singapore will be remains an open question. It surprised markets in October when it tightened monetary policy, and has indicated it is “ready to act” against further inflation risks.

Faiz Nagutha, Asean economist at Bank of America Securities, expects MAS to steepen the slope of its currency band to 1% appreciation per year, from the current 0.5% pace. He’s not ruling out a sharper hike to 1.5% appreciation — already the baseline forecast at Goldman Sachs Group Inc. — if inflation accelerates further.

Property

Long a topic of concern among Singapore residents, the property market’s strong performance this year prompted mid-December curbs from the government, the first new measures since 2018.

Amid signs that the U.S. Federal Reserve may accelerate interest-rate hikes next year — something that could drive rates higher globally — concerns have risen that Singapore borrowers may be vulnerable. New requirements such as additional stamp duties for second homes could be targeted at buyers that have overstretched their finances to purchase private property, said Christine Sun, senior vice president of research and analytics at OrangeTee & Tie Pte. in Singapore.

Market watchers are divided on how much the new policies might dampen market momentum. Sun projects private-home prices to rise “at a much slower pace” in 2022, in the range of 0%-3%.

Alan Cheong, executive director of research at Savills PLC, said the new measures may limit foreign buying of private residential properties, but are “unlikely to have any significant impact” on local demand.

Cheong still expects Singapore private residential prices to rise by 7% next year, as “the belief that real estate is a hedge against inflation” means that elevated inflation could actually be a driver of demand. He does not believe any significant government intervention is likely next year.

Taxes

Singapore’s 2022 budget in February will be closely watched for any moves targeting the wealthy and raising revenue to consolidate the city’s finances after two years of pandemic-driven deficits.

“Fiscal policy in particular will prioritize a return to balanced budget over the current term of government, which may require a range of tax increases,” Citigroup Inc. economists Kit Wei Zheng and Ang Kai Wei wrote in a December note.

Bloomberg News previously reported that city officials have been consulting business elites about possible changes, but Prime Minister Lee said in November that finding effective ways to tax wealth was “not so easy.” Finance Minister Lawrence Wong has committed to announcing a carbon-tax hike for 2024 in next year’s budget, as the city takes additional steps against climate change.

Citigroup’s economists say a hike in the goods and services tax — which the government has said will happen by 2025 — will likely be implemented next July, along with a wealth tax on existing property assets to “cushion the political impact.”

Such an approach will avoid hurting “the important wealth management industry” and Singapore’s competitiveness, while targeting “relatively immobile forms of wealth” Citi said.

Policy makers will be under pressure to maintain current spending levels, with Singapore’s top business federation recently calling for the further extension of wage and loan support into next year.

Trinh Nguyen, senior economist for emerging Asia at Natixis SA believes the government will “act rather cautiously” on taxes while it shores up the recovery. The rise in GST may be delayed, she said, as it would “push inflation higher and is regressive.”

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