Tuesday, October 30, 2007

Singapore MAS: Growth to Ease

Singapore Central Bank Says Growth to Ease, Inflation to Pick Up in 2008.

Singapore's central bank expects economic growth to slow next year as global demand wanes and market sentiment cools with inflationary pressures also on the rise.

The city-state's trade-dependent economy remains vulnerable to external shocks, but faster price growth may compel the Monetary Authority of Singapore to stand by a tight monetary policy into 2008.

"The outlook for next year is more uncertain, as it hinges on the severity of the weakness in the U.S. housing sector," the central bank said in its semiannual macroeconomic review Tuesday.

The central bank expects economic growth to ease to a range of 4-6 percent in 2008 following an expansion near the upper end of a 7-8 percent band this year.

"This forecast has incorporated the possibility of further (temporary) bouts of volatility in the global financial markets as well as higher oil prices," the review said.

"More broadly, the slower rate of (gross domestic product) growth in 2008 reflects in part the moderation in growth in the asset market-related sectors in Singapore, as investors turn more cautious."

Singapore's economy has grown faster than expected so far in 2007, partly as a result of industries boosted by a healthy asset market. Gross domestic product expanded 6.4 percent in the third quarter from the second, and 9.4 percent percent on year.

The central bank's forecast for a more moderate growth in 2008 is paired with its concerns about faster price growth.

Singapore raised the goods and services tax to 7 percent from 5 percent on July 1, creating a one-time price spike.

But rising wages and rental costs, combined with higher global commodity expenses due to surging oil prices, are expected to create a more lasting price pressure.

"These sources of inflationary pressures are likely to persist (into 2008)," the central bank said.

Inflation averaged 2.7 percent in the third quarter, which was higher than the 0.8 percent rate in the first half, the central bank said.

Wages rose 6.9 percent in the first half of 2007, up from the 3.3 percent average in 2005-2006, as the labor market tightened.

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