The Republic’s economy “remains on track to post moderate growth of 2 to 4 per cent” this year, according to the Monetary Authority of Singapore (MAS).
In its half-yearly macroeconomic review released on Tuesday (Apr 28), MAS said that while Singapore’s broad macroeconomic growth is expected to be positive, “the extent to which Singapore will benefit from the cyclical uplift will depend on developments in specific markets and industries”.
MAS said the recovery in G3 economies will be offset by a slowdown in China.
“Likewise, the global IT industry is expected to benefit from firmer demand in the developed economies in 2015 but ongoing consolidation in the industry may have spillover effects on the domestic electronics sector as firms restructure and rationalise their global operations,” said MAS.
“Some strengthening of global oil prices in the latter half of the year could provide support to the oil-related manufacturing segments, which saw a pullback following the collapse in oil prices late last year,” added MAS. “Nevertheless, there will be lingering weakness in segments such as transport engineering, due to the downshift in oil exploration activities.”
Stronger economic activity in Europe and Japan is also expected to provide support for goods and services exports. However, economists warned of downside risks – where weaker currencies in Europe and Japan may ultimately affect Singapore exports as they become relatively more expensive.
Standard Chartered Bank Regional Head of Research in Southeast Asia, Edward Lee said: “In terms of Europe and Japan, their monetary policy easing is through a weaker currency, QE essentially. And what this means is that a lot of its growth boost could come from the improvement of net trade and for that, that could mean say exporters into these two areas, they may actually suffer the negative consequence of that.”
Meanwhile, MAS said domestic-oriented industries will be supported by firm demand and a temporary respite from the deferment in foreign worker levy hikes. Thus, the domestic economy should record moderate gains for the rest of this year.
INFLATION “SUBDUED” IN 2015, SHOULD RISE IN 2016
Inflation has continued to ease in recent months, in line with expectations, said MAS. This mostly reflects the impact of lower global oil prices and enhanced medical subsidies, it added.
The monetary authority said Core Inflation moderated to 1.1 per cent year-on-year in Q1 2015, from 1.6 per cent in Q4 2014. Meanwhile, CPI-All Items inflation, or headline inflation, was further dampened by lower housing rentals, coming in at -0.3 per cent in Q1 2015, compared to 0 per cent in Q4 2014.
MAS Core Inflation and CPI-All Items inflation is expected to ease further in Q2 to Q3 2015, as the drop in global oil prices filters through more significantly to domestic prices. For 2015, MAS Core Inflation is expected to average 0.5 to 1.5 per cent in 2015, compared to 1.9 per cent in 2014, while CPI All-Items Inflation could fall to -0.5 to 0.5 per cent this year, compared to 1 per cent previously.
However, more than half of the items in the CPI basket are expected to see price increases, as the negative CPI All-Items inflation largely reflects falling car prices, housing rentals and costs of oil-related items – which together constitute a third of the CPI basket.
UOB Economist Francis Tan said: “The inflation outlook this year will be very much benign and like what the MAS said in their macroeconomic review, I think the inflation may be ticking upwards slightly at the end of this year and going into 2016, because the labour market in Singapore remains tight and there are certainly avenues and opportunities for costs to be passed through from wages to prices.”
MAS added that with some pickup in global oil prices, and the dissipation of effects of budgetary measures, inflation is expected to rise in 2016.
LABOUR MARKET WILL BE “TIGHT”
Singapore’s labour market is expected to be tight in 2015 as “firm manpower demand, especially in the domestic-oriented services sectors, runs up against increasingly binding labour supply constraints,” said MAS.
MAS also said workers have benefitted more from economic growth. In 2014, the wage bill accounted for 86 percent of GDP growth, with the wage share at 43 percent of nominal GDP, the highest in the last decade.
The bulk of the gains in the wage bill were accrued to resident workers in view of a rise in local employment.
Wage growth is also expected to pick up in 2015 amid the tight labour market, but it is unlikely to exceed the historical average of 3.7 per cent, said MAS. Wages could rise more sharply in 2016, especially if economic conditions improve and the unemployment rate falls further.
However, MAS said wage gains will remain uneven across sectors and generally stronger in the non-tradable sectors, such as accommodation & food services, retail trade and administrative & support services, where vacancy rates have been comparatively high.
Source : Channel News Asia | April 29, 2015