Channel NewsAsia, 30 Apr 2012
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.
MAS says Singapore's growth is expected to come mainly from the services sectors this year as trade-related activity, particularly in the electronics sector, will remain "sluggish".
Irvin Seah, economist at DBS Bank said: "Manufacturers are now trying to restock their inventories, and that has led to a surge in production for the electronics industry, which has lifted overall manufacturing as well as headline GDP growth but we don't think that will be sustained in the second quarter. We think some degree of pull back is possible."
While economists don't expect a repeat of the strong 9.9 per cent sequential growth in the first quarter, they see growth firming up from the second half of the year on.
MAS also expects headline inflation to remain high this year before easing.
For instance, car prices may trend higher in anticipation of a tighter supply of certificates of entitlements this year.
Vice-President of the Motor Traders Association Michael Wong, said: "There was a clawback of the excesses that were given in the past couple of years. If the COE numbers were to run the way it is running, and there's no major shock to our economy, then I really would not be surprised if the luxury car COEs cross the S$100,000 mark. For the small cars, they'll probably cross the S$65,000-75,000 mark."
Besides cars, housing rents have also surged partly due to a supply shortfall as expiring leases get reset at higher rental values.
According to data from Singstat, private road transport rose 9.6 per cent on year in March, while accommodation cost was up 9.8 per cent.
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 Mr 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.
Mr Seah 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."
Leong Wai Ho, director of research at Barclays, said: "For those who are more labour intensive, and particularly dependent on blue collared foreign workers, that will bear the brunt of the transition clearly. The transition could be longer and more stark. For more knowledge intensive operations, which accounts for the bulk of the corporate space here and certainly the MNC space, the adjustment will be less."
Most private sector economists are forecasting the economy to grow more than three per cent this year, close to the upper end of MAS' estimates.
No comments:
Post a Comment