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Singapore economy to make modest gains in coming quarters: MAS

The Singapore economy is expected to eke out modest gains in coming quarters as trade-related sectors face cyclical headwinds, the Monetary Authority of Singapore says on Wednesday in its biannual review.

The central bank maintains its projection of GDP growth this year at between 1 and 3%. MAS says recent monetary policy easings will support the economy and boost inflation over the next two years.

Earlier this month, it unexpectedly eased its exchange-rate based monetary policy, its third easing in 15 months.

“Cumulatively, these policy recalibrations will help keep the level of real GDP close to its potential in 2016 and 2017,” it says.

“These moves will also ensure price stability over the medium term by providing a partial offset to disinflationary pressures, boosting CPI-all items inflation by an average of 0.7 percentage point per annum over the next two years.”

Over the past two years, Singapore’s exports have been hurt by a global downturn in demand, resulting in losses for the manufacturing sector. The economy failed to post growth in 1Q from the previous quarter on an annualised basis, as services faltered.

It expects headline inflation at —1.0 to 0% this year, but it says CPI-all items inflation would remain negative. It also expects wage growth to slow to 2.5-3.0% this year from 3.5% in 2015.

MAS believes that with the tightening in global financial conditions, rising debt service burdens are likely to dent domestic demand growth in the region. “The softness in emerging Asia’s growth will, in turn, spillback into activity in the advanced economies,” MAS says.

Globally, inflation is likely to stay muted this year but may rise next year with the mild pick-up in economic activity, MAS says.

The outlook for Singapore’s key trading partners, such as the US and Japan, has weakened this year, it adds, partly owing to a pullback in manufacturing since the global financial crisis.

MAS warns that company margins may come under pressure because of the slowing global economy. It adds that business sentiment has worsened and unemployment is expected to rise this year even as wage growth slows.

Layoffs could continue to rise in sectors that are facing weak external demand and which are undergoing restructuring. That said, slowing business activity is limited to certain industries and the downturn is not as dire as it was during the global financial crisis, it says.

This article first appeared in The Edge Singapore Market Report.

The Edge Markets

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