S'pore economy risks over heating

S'pore economy risks over heating
Posted: 10 January 2011 1415 hrs

SINGAPORE: There would be no need for stimulus measures in Singapore this year, Senior Minister of State for Trade and Industry S Iswaran said in Parliament on Monday.

In fact, he said Singapore would need to be watchful of over-heating risks and rising inflationary pressures as the labour market tightens and capacity constraints become more binding.

Over-heating follows a prolonged period of good economic growth leading to higher levels of inflation, which could adversely impact economic prosperity.

Mr Iswaran added that expected growth of four to six per cent for this year would still be above the government's medium-term growth potential estimate of around three to five per cent per annum.

The single-digit growth would follow last year's double-digit GDP growth of almost 15 per cent, which Mr Iswaran called "exceptional and therefore not an appropriate indication of Singapore's longer term growth potential".

Going forward, Mr Iswaran said that with the economy at "full employment" as the jobless rate hovers around 2%, the emphasis would be on raising workforce productivity and increasing economic competitiveness over the medium term.

With a deluge of cheap money making everything from commodities to real estate more expensive, analysts expect further tightening measures from the Monetary Authority of Singapore (MAS).

Vishnu Varathan, an economist at Capital Economics, said: "I think the policy makers are aware that to some extent Singapore's economy is dependent on how the global economy is. So, in the region, it is imperative other countries such as China and India get a grip on inflation.

"MAS is on top of this.....Contrary to what may have been the consensus 6 to 8 months ago, there will not be a need to recant a tighter monetary policy. I think if there is going to be any policy change, the risk is that MAS might do a one-off tightening move to ensure that inflationary expectations remain well anchored. The risk of this move is rising given that inflation has picked up strongly, and growth performance in the region still seems to be quite good."

Finance Minister Tharman Shanmugaratnam, who also spoke in Parliament on Monday, said that Singapore inflation is expected to rise further in the first quarter of this year before it starts to moderate.

Singapore's consumer price index (CPI) rose 3.8% on-year in November 2010.

Excluding the rise in COE premiums, inflation during January to November last year was about 1.3 percent, led by rising commodity prices, said Mr Tharman.

Still, some analysts expect inflation in 2011 to exceed 3%.

And with the 2011 Singapore Budget just around the corner, some analysts said that those in the lower income brackets should be given more help to cope with rising costs.

Selena Ling, head of Treasury research and strategy at OCBC, said: "I guess the government can do some of the income transfers, especially those going to the lower income households and the elderly.....in terms of the areas like education, healthcare.....as well as top-ups into various accounts."

-CNA/wk/ir

- wong chee tat :)