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CREDIT Suisse (CS) has upgraded its forecast for Singapore's GDP (gross domestic product) growth in 2016 to reflect its belief that exports will become less of a drag with improved growth outlook in Europe, post-Brexit United Kingdom as well as China.
The upgrade was also underpinned by the region's more pro-growth fiscal policies, which CS said would lighten the burden on Asian central banks to cut interest rates significantly further.
"We raise our 2016 GDP forecast a touch, but remain below consensus: We now forecast 2016 GDP to rise 1.4 per cent (versus consensus 1.7 per cent), up a touch from 1.3 per cent previously," CS research analyst Michael Wan said in note on Friday.
Mr Wan added: "We maintain our negative view on Singapore's structural growth prospects, and keep our bottom-of-consensus 2017 GDP forecast of 1.1 per cent (versus consensus 1.8 per cent)."
CS raised its inflation forecasts to -0.7 per cent and -0.1 per cent on a year-on-year basis for 2016 and 2017 respectively. These remain well below consensus forecasts of -0.6 per cent and +0.8 per cent for both years respectively.
The research house said this reflected the base effects associated with oil prices, together with higher transport and carpark charges. It expects weaker domestic demand to continue to dominate, with MAS (Monetary Authority of Singapore) core inflation to moderate to just 0.5 per cent in 2017, from one per cent currently. This is well below the government's medium-term MAS core inflation forecast range of 2 per cent.
MAS is expected to ease its exchange-rate policy come October 2016 through a downward re-centring of the exchange-rate band, given that the Real Effective Exchange Rate (REER) is overvalued and domestic fundamentals deteriorating.