THE Singapore economy is expected to see modest gains in the quarters ahead, the Monetary Authority of Singapore (MAS) said on Wednesday in its twice-yearly review, while keeping to the guidance of 2016 GDP growth at between one and 3 per cent.
In a guarded assessment, MAS said prospects for the global economy have dimmed, compared to the last macroeconomic review six months ago. The subdued global growth expected in 2016 reflects the low nominal growth in many advanced economies - the trend in the years after the global financial crisis.
"Confronted with weak demand from these economies, as well as China, growth in the rest of emerging Asia is expected to stay tepid," said MAS.
And as global financial conditions tighten, domestic demand growth in the region will be impeded by rising debt service burdens. "The softness in emerging Asia's growth will, in turn, spill back into activity in the advanced economies," MAS said.
Global inflation is likely to stay muted in 2016, but may rise further next year, alongside the mild pick-up in economic activity, MAS said.
Economic activity in Singapore appears to have weakened across more sectors into the first quarter, MAS said. "Besides pockets of the trade-related industries, the modern services and consumer-facing services sectors also turned in a muted performance."
The Singapore economy grew by 1.8 per cent year-on-year in the first quarter ended March 31, 2016, unchanged from the previous quarter, flash estimates this month showed. While this beat market forecasts, growth was flat on a quarter-on-quarter seasonally-adjusted annualised basis, a contrast to the 6.2 per cent expansion in the preceding quarter.
The MAS this month flattened the slope of the S$NEER (Singapore dollar nominal effective exchange rate) band, to reflect an updated forecast of a milder increase in core inflation. MAS now expects core inflation this year to come in within the lower half of the 0.5-1.5 per cent forecast range.
Core inflation - which excludes accommodation and private road transport costs - was at 0.6 per cent in March, slightly higher than February's 0.5 per cent, MAS and the Ministry of Trade and Industry said this week.
"On the domestic front, labour market tightness is expected to ease further," MAS said in its review. Wage growth is expected to soften from 3.5 per cent in 2015 to about 2.5-3 per cent in 2016, although it will continue to be uneven across sectors, the central bank said.
"Together with a modest increase in productivity gains, aggregate unit labour cost growth is expected to moderate this year. The overall pass-through of domestic costs to consumer prices will continue to be constrained by subdued economic activity."