By Sharon Chen & Sarina Yoo - Dec 31, 2012 12:01 AM GMT+0800
Singapore may grapple with elevated inflationary pressures for a third year in 2013, reducing scope for the central bank to provide stimulus to an economy that probably entered a technical recession this quarter.
Pedestrians walk across Orchard Road near the Ion Orchard mall, right, jointly owned by CapitaLand Ltd. and Sun Hung Kai Properties Ltd., in Singapore. Photographer: Munshi Ahmed/Bloomberg
Gross domestic product contracted in the final three months of 2012 from the previous quarter, according to five of 10 economists in a Bloomberg News survey, where the median was for an annualized expansion of 0.3 percent. A decline would lead to the country’s first recession since 2009. The report will be released at 8 a.m. on Jan. 2.
Elevated housing, transportation and business costs have resulted in one of the fastest inflation rates in the developed world even as growth slows. The Monetary Authority of Singapore tightened policy this year by allowing faster currency gains in an export-dependent economy at risk from an uneven U.S. recovery and Europe’s protracted sovereign debt crisis.
“MAS faces twin challenges of stubborn inflation and sluggish growth,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. The central bank may “continue to maintain a gradual appreciation stance, even in an environment of below-trend growth,” he said.
Price gains have averaged 4.9 percent since the start of 2011, more than double the 1.9 percent average in the past two decades. The central bank forecasts an inflation rate higher than 4.5 percent this year and in a 3.5 percent-to-4.5 percent range in 2013.
Currency Gains
The third-best performing Asian currency this year has failed to stem inflation in a nation that uses its exchange rate rather than borrowing costs to manage prices. Instead, the Singaporedollar’s 6 percent rise in 2012 may be weighing on the manufacturing industry, said Kit Wei Zheng, an economist at Citigroup Inc., hurting an economy where total exports are equivalent to more than one-and-a-half times its GDP.
Non-oil domestic exports will probably rise 2 percent to 3 percent in 2012, lower than a previous forecast of 4 percent to 5 percent, the government said last month. It predicts overseas shipments will climb 2 percent to 4 percent in 2013.
Prime Minister Lee Hsien Loong may give some economic estimates in his annual New Year message later today. The government expects GDP to expand about 1.5 percent in 2012 and growth of 1 percent to 3 percent in 2013.
Ranked by the World Bank as the easiest place to do business, Lee has cut taxes in recent years to spur investment. Rolls-Royce Holdings Plc, Europe’s largest maker of commercial aircraft and ship engines, opened a S$700 million ($572 million) manufacturing and assembly plant in February.
Policy Limit
Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to one of the world’s busiest container ports, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to reduce reliance on exports.
There is a limit to how far Singapore can use the exchange- rate policy to contain inflation, central bank Managing Director Ravi Menon said in July. Still, the measure remains the broadest and most effective tool, even as it takes longer than usual to moderate price gains, he said.
“The hurdle for easing remains high for now,” said Citigroup’s Kit, who previously worked at the central bank. Inflation will probably “stay elevated through the first quarter” and economic growth is likely to be within the official forecast in 2013, he said.
Rate Cuts
Policy actions have differed among Asian economies this year as some contend with persistent price pressures, while others seek to bolster expansion. Thailand and the Philippines have lowered interest rates, while Indonesia and Malaysia kept their benchmarks unchanged at recent meetings.
Singapore’s GDP shrank for four consecutive quarters through the first three months of 2009 as the country suffered its deepest recession since independence in 1965. Thousands of workers were laid off as the global economy slumped and the government gave cash handouts to companies to help stem losses.
This year’s slowdown hasn’t stopped employers from adding to payrolls as a government push to limit the intake of foreign labor in the country of 5.3 million people led to a growing shortage of workers and higher business costs. The jobless rate is at a six-quarter low of 1.9 percent.
“Persistent tightness in the labor market will support wage increases in 2013, some of which will continue to be passed through to consumer prices,” the Trade Ministry and central bank said on Dec. 24. “Inflation will remain elevated” this quarter and next, they said.
To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Sarina Yoo in Seoul at kyoo3@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
No comments:
Post a Comment