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Singapore likely to see sluggish growth

Publication Date : 31-10-2012


Singapore's central bank has warned of sluggish growth again next year even as the country grapples with elevated inflation.

The Monetary Authority of Singapore (MAS) said yesterday that the economy here could grow below its potential rate - defined as between 3 per cent and 5 per cent - next year, as the outlook for the global economy remains murky.

But the good news is that Singapore's domestic economy will stay resilient and help create jobs and lift wages, said MAS.

The domestic sector, covering areas such as construction, health care and education, accounted for 70 per cent of growth in the first half of this year, said MAS.

The domestic economy represents about one-third of economic output in Singapore.

"This (domestic sector) will provide support to the labour market, which should remain at close to full employment next year," said the central bank.

Wages could also rise by more than 3 per cent next year, faster than this year's 2 per cent to 3 per cent.

But beyond Singapore's shores, MAS painted a gloomy outlook for next year. Even though the risk of another major global crisis has receded, many uncertainties remain, it said.

Europe remains mired in a slowdown, while the United States faces the prospect of having to cut billions of dollars in spending.

Asia is also facing a muted recovery next year, and could offer less support to Singapore, the central bank said in its twice-yearly Macroeconomic Review.

This means the Singapore economy could see its "second consecutive year of below potential growth in 2013", said MAS.

The Republic is expected to grow between 1.5 per cent and 2.5 per cent this year, far below the 5.2 per cent average growth rate over the past five years.

Many private sector economists expect growth of between 2 per cent and 3 per cent next year.

MAS did not set a target for next year, but said growth would be "positive, but below trend".

Bank of America Merrill Lynch economist Chua Hak Bin said it was not surprising that domestic sectors helped support growth, given the huge boosts in infrastructure projects.

The government is building more public housing and adding more rail lines to the transport network, to the tune of billions of dollars over the next five years.

"They are compensating for the surge in population seen in the past few years, so this will help prop up the economy for now," said Chua.

At the same time, with the job market tight and wages still rising, consumer confidence can also play a role in sustaining momentum in domestic-related economic activity.

A separate report by market research firm Nielsen confirmed this trend, showing that consumer confidence was at a one-year high in September.

"Our survey results show Singaporeans are feeling more positive, particularly where their personal finances are concerned, and accordingly, they are showing signs that they will start to spend on things they want and need," said Joan Koh, Nielsen Singapore and Malaysia's managing director.

But while a resilient domestic sector can help keep growth afloat, ultimately, Singapore's economy, being an open economy reliant on trade, will rise or sink with the global economy.

The central bank warned that should external demand fall further, "the support from domestic-oriented activities could dissipate quickly".


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