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Thursday, December 13, 2012

Economists cut Singapore 2012, 2013 growth forecasts



Economists have cut their economic forecasts and raised their inflation outlook for Singapore, a central bank survey released on Wednesday showed, in a further sign that the country is likely to face another year of sub-par growth and elevated inflation in 2013.

Singapore, whose trade is three times gross domestic product (GDP), has been hurt by the downturn in Western economies that has crimped demand for its exports.
The wealthy city-state of 5.3 million people has also underperformed neighbours such as Malaysia and Indonesia, which can rely on their much larger populations to prop up growth.

“The key thing is Singapore’s small domestic market. Regional economies, especially in the rural household sector, have benefitted from still strong resource prices so there is the domestic consumption story," said CIMB regional economist Song Seng Wun.

Economists now expect the Southeast Asian city-state’s GDP to grow 1.5% this year, down almost a full%age point from the median estimate of 2.4% in the previous poll, according to the Monetary Authority of Singapore’s (MAS) latest quarterly Survey of Professional Forecasters.

In contrast, Indonesia’s central bank said Tuesday it expects full-year growth of 6.3% in 2012, while most economists expect Malaysia’s economy will expand by more than 5% this year.

However, Singapore may avoid a technical recession based on the median estimate of 1.8% year-on-year growth in the fourth quarter, which works out to an annualised quarter-on-quarter and seasonally adjusted expansion of around 3%.

The city-state’s economy contracted an annualised and seasonally adjusted 5.9% in the third quarter from the second quarter.

MAS conducts its survey every quarter after the release of economic data for the preceding three-month period. The median forecasts in the latest report were based on the estimates of 21 economists.   

For 2013, the Singapore economy is now seen growing by just 2.7%, down from 3.9% in the previous survey but in line with the government’s latest forecast for an expansion of 1-3% next year.

Singapore’s inflation for 2012 will likely come in at 4.7% this year before slowing to 3.8% next year, the latest survey showed, with the latest estimates coming well above the September survey’s median forecasts.

While rising rents and soaring car prices have been the main contributors to inflation in Singapore over the past two years, government measures to make it harder for firms to employ low-cost foreign workers have also contributed by pushing up the prices of services such as healthcare.

Inflation had averaged around 2% prior to this period.
Most economists expect Singapore will face several years of slow growth and relatively high inflation as the government reins in immigration amid a backlash from locals unhappy about crowded trains and competition for jobs that has depressed wages at the lower end.

To help keep inflation in check, MAS is likely to persist with its policy of letting the Singapore dollar rise against the currencies of its main trading partners.

According to the MAS survey, the Singapore dollar (SGD=) is likely to end the year at 1.225 to the greenback before strengthening further to 1.200 by end-2013.

The Singapore currency, which is currently trading around 1.2210, has gained 6.2% so far this year, the third best performer among Asian currencies tracked by Thomson Reuters.

“The government has made it very clear that previous high growth rates boosted by the surge in foreign population is pretty much unsustainable," Mark Tan, a senior economist at Goldman Sachs in Singapore, said at a briefing on Tuesday.

“The new way going forward really is to boost domestic productivity and the government has said we are in a period of lower growth as the economy transitions. In that transition phase, you are going to deal with higher wage cost, high inflation and slower growth," he added.

Singapore’s economy grew by 4.9% in 2011 following a blistering 14.8% expansion in 2010.

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