Monday, April 30, 2012

MAS sticks to 1%-3% growth forecast for 2012

SINGAPORE: The Monetary Authority of Singapore (MAS) is sticking to its projection that Singapore's economic growth for the rest of the year will moderate, after the surprise rebound in the first three months of the year.

Singapore's first-quarter GDP grew 9.9 per cent on quarter and 1.6 per cent on year. This is on the back of a turnaround in the electronics sector as companies restocked, "reflecting a normalisation in disk drive production" following the disruption caused by the Thai floods last year.

The central bank is sticking to its forecast that Singapore's GDP growth will be modest, at between one per cent and three per cent this year. It says trade-related activity is likely to remain "sluggish", particularly in the electronics sector.

Instead, growth will be anchored by domestic and regional services, such as tourism and the financial industry.

In its half-yearly Macroeconomic Review Paper, MAS also says Singapore is adjusting to changes brought about by a tight labour market.

The restructuring will take place in three phases over the next decade: an initial cost-adjustment phase where wage and other business costs are likely to pick up; a consolidation phase where unit labour costs will rise as productivity enhancements take time to bear fruit; and a sustainable phase which will see the economy reap the fruits of the productivity enhancement measures.

The economy will possibly reach the sustainable phase in the second half of this decade, according to the paper.

Inflation is a cost of this restructuring, says DBS economist Irvin Seah. He says Singapore is in the initial phase of restructuring and is likely to see inflation at elevated levels over the next two to three years.

MAS expects Singapore's inflation rates to remain elevated and ease only gradually over the year.

The CPI-All Items inflation is expected to be 3.5-4.5 per cent for the year while core inflation (which excludes accommodation and private road transport) will likely be in the 2.5-3.0 per cent range.

Economists say this is partly driven by measures to drive productivity and reduce dependency on low-cost foreign labour.

Irvin Seah, economist at DBS Bank said: "We are now at the initial phase of this cost passing through to companies and I think such phenomenon could last for another two or three years. Companies will have to pass on these higher business costs to consumers so an inflation rate between three per cent and four per cent in the next few years should not come as a surprise to anyone. This is significantly higher compared to the average inflation rate of two per cent over the past 20 years."

- CNA/ir/fa

View the original article here

Source From Channel News Asia

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