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Singaporean full year growth forecast likely to be revised down, disinflationary pressures to persist

The Ministry of Trade and Industry of Singapore affirmed during the weekend that the nation’s full year growth is expected to be downwardly revised again. In the second quarter, the Singaporean economy barely expanded, growing only 0.1 percent year-on-year and suggested only 0.6 percent growth in the first half of 2019. The soft second quarter growth confirmed MAS’ worst fears.

The MAS Managing Director Ravi Menon, had stated in June that the full year growth is expected to be softer than what that had forecasted earlier. This was only a month after the government downwardly revised the official forecast for this year to 1.5 to 2.5 percent from 1.5 to 3.5 percent initially.

“When the details of the Q2 GDP are released in August, we see the official forecast revised down to 0.5-1.5 percent which will imply around 0.4-2.4 percent growth for H2 2019. However, the risks are clearly tilted to the downside a slight negative growth for 2019 is not ruled out”, said Commerzbank in a research report.

Menon had already noted that “the broadening of the trade dispute to the technology front as a new and unknown risk on the horizon”. He stated that the easing of monetary policy throughout major economies should help ease the global deceleration. In terms of implications for MAS policy, the odds are rising for MAS to act pre-emptively and ease policy during the next meeting in October along with an easing bias.

The central bank might tread cautiously and merely adopt an easing bias. Nevertheless, there don’t appear to be any prospects for Singapore’s economy to turn around anytime soon.

“As such, disinflationary pressures are likely to persist and core inflation is likely to be at the lower end of its 1-2 percent projection. Further, given both the Fed and ECB are expected to ease policy in H2 2019, there will be some cover for an MAS easing. The bottom line is that the bias is tilted to the upside for USD-SGD to year-end”, added Commerzbank.

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