Singaporean economy to grow steadily in next few years, MAS to maintain neutral policy stance - ANZ

The Singaporean economy is expected to witness a stable growth in the coming few years. According to an ANZ research report, Singapore’s economy is likely to expand 2.5 percent in the next few years. Administrative price rises are expected to push up headline inflation but overall price pressures are likely to be muted because of slack in the labor market.

In the coming quarters, the Singaporean economic growth momentum is expected to be around 0.4 percent to 0.9 percent of a quarter-on-quarter seasonally adjusted basis, stated ANZ. The global tech cycle, which has continued to strengthen, is expected be the main driver of this momentum. However, the narrow nature of external demand suggests restricted spill-overs to domestic activity and incomes.

Meanwhile, export growth is likely to taper in the second half of 2017 and contribute less to growth. The July PMI manufacturing print underpins a tentative maturing in the tech cycle. The electronics sector, which has been the main driver of the current manufacturing and export growth, is losing steam, stated ANZ.

In all, there is negligible risk of core inflation breaching the central bank’s forecast corridor of 1 percent to 2 percent for this year.

“We therefore expect the central bank to maintain a neutral policy stance for a prolonged period until there is a significant improvement in the labour market. Improvement in labour market conditions would be a necessary prerequisite for any tightening in policy”, said ANZ.

Meanwhile, with the modest GDP growth and well-contained inflation, the MAS is expected to extend the current neutral S$NEER policy through the balance of the year. However, with the economy in a better shape than last year, the S$NEER would possible continue to trade at or slightly be above the central of the policy band with the upside capped at 1 percent above the midpoint.

“USD/SGD has retraced lower on broad USD weakness, but we expect the pair to rebound modestly as the USD regains some ground in the latter part of the year”, added ANZ.

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