S'pore gets boost from developed economies

The recovery in the developed economies is pulling Singapore's economy along in its wake and setting up the country for a year or two of "modest growth" at least.

The recovery in the developed economies is pulling Singapore's economy along in its wake and setting up the country for a year or two of "modest growth" at least.

The prognosis came from the Monetary Authority of Singapore (MAS) on Tuesday, which tipped full-year expansion of 2.5 per cent to 3.5 per cent this year and much the same for next year.

The rest of the region might not be so lucky but Singapore has a trump card - its close alignment with the big three, the United States, Japan and the European Union.

The MAS noted in its biannual macroeconomic review that the country will benefit from "the positive effects of a recovery in the developed countries", which are likely to outweigh emerging Asia's "current sluggishness".

Singapore's exports are more closely linked to developed economies than to its immediate neighbours, MAS added. It said the recovery in advanced economies seems to be on a surer footing, while emerging Asia must adjust to a rise in global interest rates.

That turnaround should lead to rising demand, reviving the global information technology sector and giving a lift to the local electronics industry, which saw a surprise 20 per cent surge last month over the same period last year.

It added that the recovery in developed economies would boost Singapore's finance services like stock broking and forex trading.

But it cautioned that there could still be volatile patches from time to time, until world recovery is more even and sustainable.

Economists generally expect the local economy to grow around 3.5 per cent next year as recovery gathers pace. The more optimistic project expansion of 5 per cent.

CIMB regional economist Song Seng Wun said: "We're expecting firmer global growth supported by regional growth, with less of a drag from Europe and a US pickup."

On the employment front, domestic-oriented sectors continued to account for most jobs created, with 62,600 workers added to the workforce in the first half of this year compared with 58,900 in the same period last year.

"The labour market will tighten and wage growth will be strong," the MAS noted. It said overall wages are projected to rise more than the historical average of 3.3 per cent annually for this year and next.

But "more intense adjustments" in the labour market are likely in the next two to three years due to slowing labour force growth and relatively muted productivity rises, resulting in "strong wage and cost pressures" for local businesses. Businesses are likely to pass on more of these cost increases to consumers.

The MAS also tips inflation to pick up over the next few quarters, with domestic price rises remaining the key source. It expects services inflation to rise from 2.4 per cent in this year's first half to about 3 per cent in the second half and the whole of next year. "This will be the first time in nearly two decades that services inflation stays above 2 per cent for three consecutive years," it said.

OCBC economist Selena Ling said costs for labour-intensive services like childcare will creep up.

Mr Song added: "You're likely to end up getting more pay, but you are likely to be paying more for services as well."

alfoo@sph.com.sg

Get a copy of The Straits Times or go to straitstimes.com for more stories.