Experts see slow growth for Singapore in first quarter

Some expect central bank to further restrain Singdollar appreciation

THE pace of economic growth in the first three months of the year remained muted, experts say, ahead of important official data due out tomorrow.

This comes despite earlier hopes that lower oil prices and a more optimistic global outlook might provide a lift.

Growth in the first quarter was likely weighed down by lacklustre factory output, still-tepid demand for exports and ongoing restructuring, economists say.

The Ministry of Trade and Industry (MTI) is due to release advance estimates of first-quarter economic growth tomorrow.

Some economists also expect the central bank to further slow the appreciation of the Singdollar in view of the downbeat outlook.

The Monetary Authority of Singapore (MAS) already made a surprise tweak to its policy in January, acting months ahead of its scheduled meeting to ease the rise of the Singapore dollar.

MAS will release a policy statement tomorrow - separate from MTI's release - setting the tone for how the currency will perform in the coming months.

The manufacturing sector, which makes up a fifth of the economy here, was the main drag on growth in the January-to-March period, economists said.

"Restructuring and stricter foreign worker limits are hurting manufacturing and preventing companies from capitalising on any demand upswing," said Bank of America Merrill Lynch economist Chua Hak Bin.

Factory output shrank 1.2 per cent in January and February over those months last year.

DBS economist Irvin Seah said the forecast for the sector is downbeat, especially as the global outlook is still less than sanguine. He said: "The recovery in the United States has been weaker than what most people had anticipated."

The service sector was the main pillar of growth in the first three months of the year, though the performance of specific clusters was patchy, Mr Seah said.

The financial sector grew most strongly, while transportation and wholesale trade continued to be hit by still-sluggish global demand and the labour crunch here.

Dr Chua expects MTI to cut its economic growth forecast for the full year to between 1 per cent and 3 per cent, from 2 per cent to 4 per cent.

Given weak economic growth and muted inflationary pressures, MAS is also likely to further ease monetary policy, he added.

Singapore conducts monetary policy by managing the exchange rate against a basket of currencies of its major trading partners.

The exchange rate is allowed to float within a policy band that MAS can adjust when it reviews monetary policy twice a year.

A stronger Singdollar, which can be achieved by making the band's slope steeper or lifting its mid-point, helps to dampen inflation by making the prices of imported goods lower. On the other hand, a weaker Singdollar helps exporters, whose goods become less expensive in foreign markets.

MAS can also opt to widen the band to accommodate greater fluctuations in the exchange rate.

Economists are divided over whether or not MAS will allow the Singdollar to weaken further and, if so, what method the central bank is likely to use.

Citi economist Kit Wei Zheng said the decision will be a "close call". If MAS acts, however, a wider band would be the most appropriate response to greater financial market volatility ahead of an expected rise in the main US interest rate later this year, while providing flexibility amid economic uncertainty, he added.

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