Apr 29, 2015

    G-3 boost and China drag to influence S'pore's growth, says MAS

    THE growth of Singapore's economy will be supported by a firmer recovery in the Group of Three (G-3) countries but offset by China's slowdown, said the Monetary Authority of Singapore (MAS) yesterday.

    "A firmer recovery in the G-3 will provide a broad-based boost to the external-oriented sectors of the Singapore economy," said MAS in this month's macroeconomic review.

    G-3 comprises the United States, Japan and the euro zone.

    The G-3 is forecast to grow 1.9 per cent this year, up from 1.3 per cent last year. The US is expected to grow 2.9 per cent, Japan 1 per cent and euro zone 1.5 per cent. Last year, the US grew 2.4 per cent, Japan had zero growth and the euro zone grew 0.9 per cent.

    "However, the extent of the uplift will be capped by developments in specific markets and industries," it said.

    Uncertainties include a slowdown in China, corporate realignments in the information technology industry and continued weakness in the oil-related transport engineering sectors due to a downshift in oil and gas exploration.

    China is slated to grow 6.9 per cent this year, down from 7.4 per cent last year.

    Domestic-oriented industries will be supported by firm demand and a temporary reprieve from the deferment in foreign worker levy hikes.

    "All in, the Singapore economy is on track to post moderate growth of 2-4 per cent this year," the central bank said.

    On inflation, MAS said it will ease further before rising towards the end of the year

    Domestic inflation has fallen in recent months, even recording negative prints in some months. Detailed data shows that this was not due to widespread price declines across the economy, MAS said.

    Rather, it reflected the plunge in global oil prices and an increase in medication subsidies, as well as softer housing rentals.

    Oil prices are expected to remain subdued in the near term amid global oil oversupply. This is expected to further dampen domestic inflation, while possibly also lowering firms' production costs.

    However, they are generally expected to recover gradually in the second half of the year, led by a slowdown in supply growth arising from the recent decline in oil investments, MAS said.

    Domestically, the labour market will stay tight in the coming months, and the extent to which businesses can pass costs on to consumers should remain moderate, given slow economic growth, the central bank said.

    For next year, MAS expects inflation to rise as global oil prices pick up and the effects of Budget 2015's measures dissipate.

    At the same time, the labour market will still be tight.

    "The risk remains that underlying domestic cost pressures in the economy could mount, leading to stronger cost pass-through to consumer prices, especially if economic conditions improve," the central bank said in its review.