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Growth forecast to be reviewed as economy remains sluggish

SINGAPORE — The economy is likely to remain in the doldrums for the second half of this year, the Monetary Authority of Singapore (MAS) said on Monday (July 25) ahead of its next quarterly economic review.

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SINGAPORE — The economy is likely to remain in the doldrums for the second half of this year, the Monetary Authority of Singapore (MAS) said on Monday (July 25) ahead of its next quarterly economic review.

“Singapore’s economic growth remains sluggish. Real gross domestic product growth came in at 0.8 per cent in the second quarter on a quarter-on-quarter seasonally adjusted basis. Growth in the first half of this year has averaged 2.2 per cent in year-on-year terms. The economic performance for the second half of this year will not be too different from the first half of the year, said MAS managing director Ravi Menon on Monday at the central bank’s annual report briefing. He added that the Ministry of Trade and Industry and the MAS will be reviewing the Republic’s 2016 full-year growth forecast of 1 to 3 per cent, with more details to be given in due course.

UOB economist Francis Tan said: “This is not unusual for the MAS as it will usually review the forecast after the first half of the year, when it has pulled enough data from the first few months of the year. The revision, in my opinion, could likely be revised to between 1.5 and 2.5 per cent.” 

Mr Tan had lowered his forecast for economic growth to 2.2 per cent this year from his earlier call for a 2.7 per cent increase, still well within the current official forecast range.

On Monday, Mr Menon said that with the global economy headed for another year of lacklustre growth, the MAS will be closely watching three factors: Britain’s vote to leave the European Union and the implications, the shape of the recovery of the United States economy and the slowdown in Chinese growth.

The services cluster, which has been the key driver for Singapore’s growth in the last few years, will see its contribution fall significantly this year, Mr Menon noted. 

Financial services, which had grown faster than the rest of the economy in the last four years, will see its pace slow to a similar beat as the overall economy. Meanwhile, sectors such as professional services — architectural and engineering services — which are more exposed to the United Kingdom and European Union, will also experience slower growth. The retail sector is also likely to remain weak for the rest of the year, weighed down by sluggish consumer and business sentiment, he added.

“Even though the immediate crisis of Brexit has passed, the impact of it will continue to weigh. There are still risks going forward, such as the US presidential elections in November. Singapore will continue to face headwinds,” CIMB Private Bank economist Song Seng Wun said.

Despite the cautious outlook, the central bank is expected to keep to its neutral policy setting.

“MAS is monitoring the global developments closely. Unless there is a marked deterioration in the global economy or significant shift in inflation outlook, there is no need to change the monetary policy stance. The current stance will help ensure price stability in the medium term,” he said. In April, the central bank had eased policy by guiding the rate of appreciation of the Singapore dollar nominal effective exchange rate policy band to zero per cent.

Headline, or all-items, inflation has been negative for some time, but could turn positive towards the later part of this year, barring large shocks to global oil prices or an unexpected decline in COE premiums, Mr Menon said.  It is forecast to stay between minus 1 per cent and zero this year and is expected to climb out of negative territory and move towards 1 per cent next year.

Core inflation, which excludes the costs of accommodation and private road transport, is expected to gradually pick up, reflecting the diminishing drag from oil prices and budgetary measures. 

Core inflation will likely average around 1 per cent this year and trend towards its historical average of close to 2 per cent over the course of next year, Mr Menon said. Core inflation is a closely watched indicator by economists as it reflects items that put cost pressures more on the low-income households.

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