Companies still concerned about rising costs, inflation

Companies still concerned about rising costs, inflation
By Wong Siew Ying, Channel NewsAsia | Posted: 09 January 2010 0042 hrs

SINGAPORE : Even as the Singapore economy shows signs of recovery, companies have said they are still concerned about rising business costs and inflation.

But economists believe excess capacity around the world may somewhat cushion the impact.

The Singapore Chinese Chamber of Commerce and Industry (SCCCI) said two key thrusts for the year are manpower training and tapping on opportunities in the services sector. But uncertainties in Western markets remain a threat.

Speaking at a seminar on Friday, Teo Siong Seng, president, SCCCI, said: "We hope there will be fewer surprises like the Dubai credit crunch, and also cost - manpower cost and oil prices firming up. There is a concern whether there will be an inflation pressure in 2010."

But some economists said excess global capacity may keep inflationary pressure in check for now. And companies re-stocking inventories could provide support to world economies.

David Cohen, director of Asian Economic Forecasting, Action Economics, said: "So far, all we have had is just a slowing in the reduction in inventory. We have not seen much rebuilding yet, so that could potentially still remain supportive for at least the near term. I do not think it poses a major threat to the outlook for 2010."

Mr Cohen also expects the MSCI Asia-Pacific Equity Index to grow by about 10 per cent this year, in line with global economic recovery. The index mounted a strong rebound at the end of 2009, gaining some 34 per cent.

Still, observers have warned that there may be some headwinds that could restrain recovery in 2010. They include sluggish G7 growth after the crisis, weak consumer spending in the US and potential foreign exchange pressures.

Industry players also expect central banks to tighten their monetary policy this year.

Speaking at the seminar, UBS said the three-month Singapore Interbank Offered Rate could reach 0.8 per cent by end-2010, from the 0.5 per cent currently.

Going forward, observers expect Asia to lead the global turnaround, partly due to stronger balance sheets and robust rebound in manufacturing and trade. In particular, the prospects for China, India and Indonesia are most promising.

Professor Bernard Yeung, dean, NUS Business School, said: "New growth has to come out from very sharp resource allocation.

"The challenges would be how do we deal with allocation efficiency problem, how do we deal with productivity enhancement issues, how do we deal with cleaning up the environment, giving people good education, good healthcare that we can keep ourselves as a high skill, high productivity, innovative economy."

Experts also warned about asset bubbles which could push prices beyond fundamentals.

- CNA/ms

- wong chee tat :)