Despite recent 'green shoots' emerging in selected sectors and countries around the world, 'expectations of a sustained recovery appear premature at this point', MAS said. -- ST PHOTO: ALPHONSUS CHERN
SINGAPORE'S economy has probably gone through the 'most intense' phase of the the downturn, but a decisive recovery is not on the cards this year, said the Monetary Authority of Singapore (MAS) on Wednesday.
'After the steep plunge in Q4 last year and Q1 this year, the most intense phase of this downturn has probably already taken place,' said the central bank in its semi-annual macroeconomic review.
But it added that 'the climb from the trough will likely be slow, gradual and fraught with uncertainties.' Despite recent 'green shoots' emerging in selected sectors and countries around the world, 'expectations of a sustained recovery appear premature at this point', MAS said.
Signs of an uptick in economic activity could be a result of producers remedying their over-corrections last year and refiling inventories that were drawn down too quickly, rather than because of a firm improvement in demand, it added. 'Given the continuing layoffs and stresses in global financial markets, the recovery is likely to be modest and uneven.'
MAS is predicting that net unemployment by the end of this year, excluding construction, could be worse than what was seen during the 1998 Asian financial crisis and the 2001 global dot.com bust, where 19,800 and 8,200 jobs were lost respectively.
But it added that the 'adjustment in the labour market this time around could be moderated by several government initiatives,' highlighting the availability of 18,000 jobs across the public sector, and the implementation of the Jobs Credit Scheme and Skills Programme for Upgrading and Resilience (Spur).
The central bank also said that a deflationary spiral in prices is unlikely to occur despite inflation dissipating at a faster rate this year.
There is 'little likelihood at this point in time of a persistent, broadbased and self-sustaining drop in consumer prices", even with the price of oil, food and rentals likely to come down this year, it said.
The price declines will be limited to less than 40 per cent of the overall basket of goods in the consumer price index it said. Oil is expected to trade around the US$50 to US$60 range.
MAS added that the spreading swine flu outbreak could set back Singapore's recovery. 'The adverse external factors impacting the Singapore economy are likely to persist, while the recent outbreak of swine influenza has added a new dimension to the risks for GDP prospects,' the central bank said.
