As global trade stays downbeat, domestic firms in the information technology services and infrastructure sectors will play a key role in supporting the nation's growth this year, the Monetary Authority of Singapore (MAS) said yesterday.
"Demand for information and communications services is expected to be firm, with the Government's Smart Nation initiative, which includes procurement of a wide range of IT services and infrastructure, providing the boost," MAS said in its quarterly report on recent economic developments.
"Meanwhile, the life insurance industry should continue to register healthy gains, given Singapore's relatively lower life insurance penetration rate as compared to other advanced Asian economies."
Other domestic-oriented sectors will also benefit from increased government expenditure in healthcare, education, social services and transport infrastructure, MAS said.
Singapore's economy is expected to grow at a modest pace this year, said MAS, maintaining the Government's forecast for gross domestic product (GDP) to grow between 1 and 3 per cent this year.
MAS also expects job creation to remain subdued and wage pressures to ease in line with the tepid economic environment in the near term. Overall, wages grew by 3.5 per cent over last year.
Estimates in January put employment growth at 0.9 per cent or 31,800 jobs created last year, from 3.7 per cent growth and 130,100 jobs added in 2014.
"Labour demand will continue to be uneven across sectors and wage increments will be larger in industries where manpower shortages are more acute, such as community, social and personal services," said MAS.
The central bank also flagged "labour supply constraints" as a short-term challenge as Singapore presses on with restructuring towards productivity-led growth. But if it can transform itself into a knowledge- and skills-intensive economy over the medium term, this will prepare the Republic for the next phase of sustainable growth, even as it faces binding resource constraints in a mature economy.
On the regional outlook, MAS expects growth in Asia excluding Japan this year to come in "a shade lower" than in the last, as the region continues to contend with a slowdown in China and low commodity prices. Recent data such as February's purchasing managers' index reading also points to a slackening in growth momentum for the Chinese economy, MAS noted.
"As the authorities pursue structural reforms and implement plans to reduce excess capacity in the economy, workers could be laid off from heavy industry, posing a downside risk to household consumption," said MAS, noting the consensus forecast for China's GDP to grow at 6.5 per cent this year, at the lower end of Beijing's 6.5 to 7 per cent target.
"Nonetheless, the central government is expected to buffer slowing growth by introducing more targeted fiscal support," added MAS.
MAS also expects economic activity in the United States to rebound soon, supported by resilient household spending that surveys show has held up despite the stock market rout at the start of the year.
The steady decline in America's unemployment rate to a post-crisis low of 4.9 per cent in January also backs the case for stronger consumer spending, said the MAS.
Meanwhile, the growth outlook in the euro zone has "weakened slightly" although the region's recovery remains largely on track, and Japan could see a "modest recovery" in the second half of this year when domestic demand picks up.
This article was first published on March 5, 2016.
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