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Singapore's outlook this year still positive despite trade risks: MAS

02 May, 2018

SINGAPORE'S economic outlook for the year remains positive despite global trade risks, said the Monetary Authority of Singapore (MAS) in the April edition of its half-yearly macroeconomic review on Friday.

Economists said the review provides further support for the central bank's decision earlier this month to tighten monetary policy for the first time in six years. But they added that the labour market bears watching, given the first quarter's weak employment figures.

In its review, the central bank reiterated its expectation for full-year gross domestic product (GDP) growth to come in "slightly above the middle of the forecast range" of 1.5 per cent to 3.5 per cent.

It said that with global final demand expected to stay firm this year, trade-related sectors will anchor growth, even as modern services and domestic-oriented sectors become more important drivers over time.

On the global front, the escalation of rhetoric from the United States and China has stoked fears of protracted trade tensions, the MAS noted.

While the direct impact from announced tariffs should be limited, a loss of confidence could curb investment and hit consumer spending, dampening global growth and posing "some downside risk" for Singapore.

"Nonetheless, barring a significant escalation of trade and other geopolitical tensions, domestic GDP growth is expected to continue on a steady expansion path for the rest of the year."

The central bank was also optimistic on labour, saying: "A broad range of indicators - including reduced retrenchments and falling unemployment rates - suggests that labour market conditions are improving."

Overall employment expanded in the second half of 2017, after contracting in the preceding two six-month periods.

Barring a significant intensification of global trade frictions, the MAS expects overall labour demand to expand this year, supported by hiring in external-oriented and community, social and personal services.

Maybank Kim Eng economist Chua Hak Bin, however, said first-quarter figures have left him "a bit worried about the labour market recovery".

Total employment, excluding foreign domestic workers, contracted by 2,100 in the first three months of 2018, going by the preliminary Manpower Ministry figures on Friday.

For now, labour is the "missing piece in the jigsaw" of recovery, he said. But growth in services - which are generally more labour-intensive - should boost employment, he added.

Despite the fall in total employment, the picture of labour market recovery was underpinned by the unemployment rate falling to 2 per cent in March, said OCBC head of treasury research and strategy Selena Ling. She noted the MAS' "greater watchfulness about the increase in core inflation" due to this.

The MAS expects core inflation to rise gradually for the rest of the year, with the projected reduction of labour market slack adding about 0.2 per cent point to core inflation.

Full-year core inflation and headline inflation are expected to come in at the upper half of their respective forecast ranges of 1 to 2 per cent and zero to 1 per cent.

Dr Chua is worried that some wage rises may come in sectors without commensurate productivity growth.

UOB economist Francis Tan believes wage rises will be supported by demand, but flagged the risk of rising global commodities prices.

A highlight of Friday's review is that it makes clear MAS' expectation for inflation to trend higher, he said: "We know that if things go on as expected, they won't pull back - it won't suddenly be neutral policy again."

Adapted from The Business Times, 28 Apr 2018.