Singaporean economy to grow at modest rate in 2016; SGD likely to weaken against USD

The Singaporean economy is likely to expand at a slightly slower rate this year as compared to that of 2015. The economy is expected to grow 1.9 percent in 2016, which is within the Singapore government’s projection range of 1 percent to 3 percent, said Commerzbank in a research report. However, the estimated growth rate is lower than the average growth of 6.6 percent recorded from 2000-2006. In 2015, the economy had expanded at a modest rate of 2 percent for the second straight year.

Meanwhile, headline inflation has been slowing in the past year. Inflation has remained in negative territory since November 2014 due to decline in energy prices and subdued demand.

Last year, headline inflation averaged -0.5 percent and is expected to record a modest -0.5-0.5 percent this year, according to Commerzbank. Core inflation, excluding private road transport and accommodation, is likely to come in at a mild range of 0.5 percent --- 1.5 percent in 2016.

The Singaporean central bank had surprised in April by dialling back the SGD NEER pace appreciation to zero from the previous “modest and gradual appreciation bias”. Since January 2015, this was the third easing. This was due to a more cautious growth outlook, reduced inflationary pressures and likely increase in redundancies. The central bank maintained the mid-point of the SGD NEER.

Meanwhile, the Singaporean dollar is expected to depreciate against the USD because of several reasons: likelihood of inflation to remain weak, knock-on effects from the depreciation pressures in regional currencies, sluggish growth outlook and the strong USD backdrop, noted Commerzbank. The SGD NEER is expected to be influenced noticeably by MYR, CNY and IDR.

“We forecast USD-SGD at 1.45 by end-2016,” added Commerzbank.