Economists cut Singapore growth, inflation outlook: Survey

SINGAPORE - Singapore's inflation for 2013 is expected to come in below the central bank’s forecast of 3-4 percent, a survey of economists by the central bank showed, in a sign rising prices have become less of a concern after two years of elevated cost pressures.

The Monetary Authority of Singapore’s (MAS) latest quarterly Survey of Professional Forecasters found that economists now expect the city-state’s consumer price index (CPI) to rise by 2.8 percent this year, a full percentage point below the median estimate of a 3.8 percent gain in the previous poll.

But inflation is expected to pick up again in 2014 to 3.1 percent, the survey released on Wednesday showed. Thus many forecasters believe the central bank will continue to keep monetary policy tight when it publishes its next half yearly policy statement in October.

“Even though inflation will be lower than last year’s average, it’s still on the high side relative to historical trends so there shouldn’t be any changes in the October policy,”said Francis Tan, an economist at Singapore’s United Overseas Bank.

Tan said the MAS has indicated core inflation will pick up later this year, and he noted that car prices have begun edging higher after falling in March and April as a result of tougher financing rules.

The MAS’ core inflation measure, which excludes housing and private car prices that are more influenced by government policy, will likely come in at 1.8 percent this year, down from the previous median estimate of 2.0 percent. But the survey also showed economists expect core inflation will edge up to 2.0 percent next year.

Singapore manages monetary policy by letting the local dollar rise or fall against a basket of currencies. The current policy stance is for a modest and gradual appreciation of the Singapore dollar, whose recent decline against the dollar is more a reflection of the U.S. currency’s strength, Tan said.

The Southeast Asian city-state, a key Asian financial centre, has been grappling with slow growth and relatively high inflation in recent years. But the inflation outlook has improved with the CPI rising by just 1.5 percent in April from a year earlier – the lowest gain in more than three years – as falling car prices and government rebates kept a lid on prices.

Singapore’s inflation was 4.6 percent last year and 5.2 percent in 2011.

The MAS conducts its survey every quarter after the release of detailed economic data for the preceding three-month period. The median forecasts in the latest report were based on the estimates of 22 economists.

GDP, SINGAPORE DOLLAR

Although Singapore’s first quarter gross domestic product (GDP) came in much better than expected, partly due to a surge in financial services as trading in stocks and foreign exchange soared, economists have become less optimistic about growth for the full year.

The MAS survey shows economists now expect GDP growth of 2.3 percent for 2013, slower than the median estimate of 2.8 percent in March.

With the dollar strengthening against most Asian currencies in recent months on signs of a firmer recovery in the world’s largest economy, forecasters now expect the Singapore dollar to end the year at 1.25 to the U.S. currency, from 1.20 in the previous survey.

The Singapore dollar has lost around 2.6 percent against the dollar so far this year, and is currently trading around 1.25 to its U.S. counterpart.

Singapore’s official forecast is for growth of 1-3 percent this year, suggesting a slightly better performance than last year’s 1.3 percent.