Singapore raises 2011 inflation rate forecast

Singapore raises 2011 inflation rate forecast
By May Wong | Posted: 17 February 2011 2302 hrs

SINGAPORE: Singapore has raised its inflation forecast for this year to 3%-4%, up from a previous estimate of 2%-3%.

The Monetary Authority of Singapore (MAS) said the higher forecast is because of factors such as the surge in COE premiums.

However, the MAS forecast for core inflation, which excludes the cost of accommodation and private road transport, remains unchanged at 2%-3%.

At a Trade and Industry Ministry news conference on Thursday on Singapore's growth forecast, the central bank added that inflation is expected to accelerate to 5%-6% in the first few months of this year before moderating in the second half.

Singapore's economy powered ahead last year, growing 14.5%, only slightly slower than previously estimated and reversing the decline of 0.8% in 2009.

Manufacturing provided a significant lift to the economy. It grew 29.7% last year, following a 4.2% contraction in 2009.

For the fourth quarter, the manufacturing sector grew 25.5% year-on-year, faster than the 13.7% growth seen in the third quarter.

The biomedical manufacturing cluster, with strong recovery in pharmaceutical output, led the growth.

Growth in the construction industry continued last year but at a more modest pace of 6.1%, compared with 17.1% in 2009.

The services sector expanded 10.5% last year, compared with a contraction of 0.7% in 2009.

For the full year of 2011, the government has retained its economic growth forecast of between 4% and 6%.

Ravi Menon, Permanent Secretary for Trade and Industry, said: "This is going to be a more normal year, but I think in many ways, decisive in the kind of direction we set for ourselves for the next five to 10 years. 2011 will be different from previous years. Growth will be healthy but will be nowhere near as spectacular as it was in 2010 when the economy was rebounding from a recession.

"There are risks on the horizon, especially in Europe but we're not facing the prospects of a global financial crisis as in 2009. We're growing above the economy's underlying potential. This means there'll be a buildup in cost pressures, especially in the labour market.

"But we expect them to be more contained than in 2007/2008. On the whole, a good year for growth, with some need to be vigilant about cost pressures."

The pressures are already evident in higher food prices and more expensive residential property rentals. These are some factors prompting the central bank to raise its inflation forecast by one percentage-point for this year.

Irvin Seah, economist & vice-president at DBS Group Research, said: "The rise in labour costs will be the next driver of inflation in the coming months. So that would actually give more impetus to monetary tightening across Asia, in a sense that central banks will have to anchor inflation expectation in order to fight against this inflationary pressure.

"The data basically reinforces that the government would have to do something to help the lower-income families cope with rising cost of living. Therefore in this (2011) Budget, the government will help lower-income families cope with the rising cost of living.

"That will come in the form of massive special transfer package which we estimate to be worth S$7.2 billion. That's double the amount which was given during the Progress Package back in 2006 in the year of the last election."

With the central bank raising its inflation forecast, analysts say the MAS may signal its preference for a stronger Singapore dollar in its monetary policy announcement in April.

Based on the latest data, some analysts have revised their earlier forecasts.

Some believe Singapore's economy will grow about 5% in 2011. DBS has maintained its GDP forecast at 7% percent for 2011.

But Barclays Capital and OCBC have revised their numbers upwards to 5%.

Barclay's senior regional economist, Leong Wai Ho, said: "Looking ahead, we are now forecasting GDP growth of 5% in 2011, up from our earlier forecast of 4%. This forecast is based in part on an expected pick-up in demand for electronics on the back of the launch of Intel's 'Sandy Bridge' chipset and strong sales of smartphones and tablet PC products in early Q1 2011."

Sector-wise, the construction sector will go into a sharper moderation in 2011 because many projects are nearing completion. But analysts believe that the services industry will continue to be the key driver, not just for Singapore's economic growth but for job creation as well.

The services sector, observers say, accounts for about two-third of Singapore's total employment. And observers say this sector has traditionally been stable and reliable with star performers coming from the financial services and tourism segments this year.

- CNA/ir

- wong chee tat :)