By Lee Su Shyan

SINGAPORE is not facing the dreaded 1970s curse of stagflation, said Senior Minister of State for Trade and Industry S. Iswaran.

The unholy combination of sluggish growth, high inflation and rising unemployment inflicted huge damage 30 years ago on developed countries, but Mr Iswaran is confident things are different now.

This is because even as inflation is likely to stay high, the economy expanded 4.3 per cent in the first half of this year.

Mr Iswaran was responding to a question on Monday from Dr Lily Neo (Jalan Besar GRC), about the risks facing Singapore.

'Our job market remains healthy. In the first quarter of the year, more than 73,000 jobs were created and unemployment remains low,' he said.

While the United States has severe problems in its financial sector and other economies such as Japan and Germany may see further softening, Asia's growth has been fairly robust.

Said Mr Iswaran: 'In Singapore, the strong pipeline of foreign investments and tourism projects...will also provide a certain amount of support to the economy for the rest of this year and beyond.'

But inflation - the other aspect of stagflation - hit 7.5 per cent in May. 'We expect some moderation in the second half...but inflation is not likely to return to previous levels any time soon,' he said.

Stagflation has become a hot issue among economists.

Dr Chua Hak Bin of Deutsche Bank's private banking arm has cited the risks from pricier oil, while a recent report from CIMB's Mr Song Seng Wun cautioned about stagflation with inflation at 7.5 per cent and gross domestic product (GDP) growth in the low single digits for the second quarter this year.

But Mr Song had said the modest GDP figures should dampen wage expectations and, once energy and commodity prices stabilise, inflation would ease next year, ending the stagflation risk.

Mr Iswaran said the strong Singapore dollar would dampen inflation, but added that firms must keep wage growth in line with productivity.

The Ministry of Trade and Industry will review next month its forecast of 4 per cent to 6 per cent GDP growth this year.

This article was first published in The Straits Times on 23 July 2008.