Low Inflation and Slower Growth Sets Stage for Easing
The Singapore economy is expected to grow by 2.8% in 2015, down from the previous forecast of 3.1%, according to the latest quarterly Survey of Professional Forecasters conducted by the Monetary Authority of Singapore (MAS).
However, private economists expect financials to do better, with the Finance and Insurance sector forecast to grow 7.5% instead of 6.5% estimated in the December survey. Interestingly, the sector was predicted to expand by 7.5% in the fourth quarter, but grew at a better-than-expected rate of 10.3%.
Earlier, MAS Core Inflation, which excludes the costs of accommodation and private road transport, came in at 1.0% in January 2015 compared to 1.5% in December 2014, due to the cut in electricity tariffs, as well as lower food and services inflation. CPI-All Items inflation eased to -0.4 % in January 2015 from -0.1% in December 2014, mainly due to sharper price declines in oil-related items, as well as lower food and services inflation..
MAS Core Inflation and CPI-All Items inflation could ease further, before rising in the second half of 2015, on account of some recovery in global oil prices, and in view of the base effects associated with the low inflation in Q4 2014, the Ministry of Trade and Industry said in a February statement.
Elsewhere, the Singapore economy expanded by 2.9% in 2014, slowing from the 4.4% growth chalked up in 2013. The growth forecast for 2015 is 2.0% to 4.0%, according to the Ministry of Trade and Industry.
According to Morgan Stanley, relocation of manufacturing capacity out of Singapore has kept industrial production and non-oil domestic exports on a weak footing. Meanwhile, the leverage cycle continues to unwind, posing further headwinds to the economy. Credit growth is decelerating and the property market and construction sectors are seeing the collateral impact from that. In addition, the aging population and policy measures to wean the economy from dependence on foreign labour, given the infrastructure/political/social constraints, continue to exert pressure on near-term and medium-term prospects.
The combination of falling growth and lower inflation means the government has incentive to hike growth and room to further ease monetary policy.
