UPDATE 2-Singapore c.bank says economy on track for 2-4 pct growth amid restructuring

Thu Jul 24, 2014 4:12am EDT

Related Topics

* Quarter-on-quarter GDP growth seen likely to improve in H2

* MAS lowers forecast range of headline inflation to 1.5-2.0 pct

* Core inflation forecast unchanged at 2-3 pct in 2014

* Too early to ease property-related measures-MAS managing director (Recasts, adds comments)

By Masayuki Kitano

SINGAPORE, July 24 (Reuters) - Singapore's economy is still expected to grow by the projected 2-4 percent in 2014, although some segments will expand more slowly due to restructuring, the central bank said on Thursday.

Quarter-on-quarter growth is likely to see a "modest pick-up" in the second half after a slowdown over the first two quarters, Monetary Authority of Singapore (MAS) Managing Director Ravi Menon told reporters.

Major drivers of global growth remain intact, with recent data suggesting a continued economic expansion in the United States, while growth in China is likely to come in at around 7-7.5 percent, he said.

"What you're seeing in the economy right now, because of restructuring, are pockets of weaknesses in several sectors, and areas of continued strength in other areas," Menon said.

"So on balance, we're still looking at growth of about 2-4 percent... In certain segments of the economy you are going to see much lower growth."

CHANGING ACTIVITIES

Sectors that rely on regional demand such as financial intermediation services are likely to do well and domestic-oriented ones will probably remain resilient, he said.

The manufacturing sector is now undergoing a transformation, similar to in the past when some activities in Singapore were hollowed out but were replaced by others, Menon said.

"What we've seen in the past is a shift from production of one kind, to production of another kind. Now we're seeing a shift where the production itself is taking place less and less here."

"But you're seeing a lot of...testing activities, research and development, product development and so on taking place here, and the management of these processes," the MAS managing director said. "So it will be interesting to see how this pans out."

Singapore's government has been working to reduce a politically-unpopular reliance on foreign labour as part of a push to increase the economy's productivity, but the move has led to a tight labour market, putting upward pressure on wages.

INFLATION OUTLOOK

Menon said the MAS had lowered its 2014 forecast range for headline inflation to 1.5-2.0 percent from the previous 1.5-2.5 percent, adding that the all-items inflation pace was falling due to a moderation in housing costs and car prices.

The MAS, however, kept its forecast for core inflation, which excludes changes in the prices of cars and accommodation, unchanged at 2-3 percent for 2014.

Core inflation is likely to increase slightly over the rest of the year from 2.1 percent in the first half, while all-items inflation is likely to continue to ease after slipping to 1.7 percent in the first half, Menon said.

"Just as we were not unduly alarmed when all-items inflation was running at 5 percent, we should not be complacent now just because all-items inflation is running below 2 percent," he said.

"Our focus remains on core inflation," Menon said, adding that the aim of monetary policy is to keep core inflation expectations anchored at around 2.5 percent.

The MAS expects core inflation to be higher than the historical average of 2 percent over the next few years as the economy undergoes restructuring, he added.

Menon also added that it was too early to ease property-related measures.

Property prices are still elevated and the levels of debt among highly-leveraged households also remain high, he said, adding that to ease measures at a time when global interest rates are at historical lows could trigger further rises in property prices.

In its annual report released on Thursday , the MAS said it posted a S$15.84 billion ($12.80 billion) net profit in its last financial year, helped by a drop in the local currency that led to valuation gains on its foreign currency holdings. (Editing by Kim Coghill and Richard Borsuk)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.