Jul 10, 2014

    Inflation here 'more domestic in nature'

    A STRONG Singapore dollar "should not be seen as too helpful" in curbing rising prices in Singapore, as various measures suggest that inflation pressures are more domestic in nature, said a Credit Agricole CIB report released yesterday.

    In its Asia Outlook and Strategy Mid-year 2014 report, the bank added: "On the other hand, a stable or slightly weaker Singapore dollar Neer (nominal effective exchange rate) would set a supportive backdrop for Singapore's export performance in the coming quarters."

    The bank said Singapore will "maintain competitiveness", noting that manufacturing activity has been picking up, driven by the biomedical, chemicals and transport engineering sectors.

    "Along with the gradual recovery in the global economy, externally oriented sectors, including manufacturing and trade-related services, are likely to be supported in the coming quarters," added the report.

    Still, author Frances Cheung noted that, thus far, Singapore appears to have failed to benefit from the recovery in the global IT cycle, with its monthly exports of electronic products falling year-on-year since August 2012.

    "While the product mix (not able to tap certain expanding segments) could be a reason, productivity remains the key focus, especially considering the tightening measures on foreign labour."

    Credit Agricole CIB also highlighted recent lacklustre growth in productivity here - overall productivity "barely grew" last year, while total factor productivity was still declining.

    It said: "Looking ahead, productivity growth may be able to offset only part of the expected wage increases amid the tight labour market."