MAS sees few bright spots in the short term for economy

Facade of the Monetary Authority of Singapore building.
Facade of the Monetary Authority of Singapore building.ST PHOTO: ALICIA CHAN

The economy is facing uncertainty in the short term as the outlook for Singapore's key trading partners remains cloudy, according to the Monetary Authority of Singapore (MAS) yesterday.

But despite the lacklustre outlook, the central bank said its decision this month to slightly reduce the Singdollar's rate of appreciation was appropriate, adding that a more drastic move would have been unwarranted given that the economy has not fallen off a cliff.

MAS noted in its biannual macro-economic review out yesterday that global growth prospects have softened over the past six months. While the United States has been showing some signs of recovery, its growth has been largely consumption-driven, and mainly met by domestic supply. This means any boost to Singapore from a resurgent US could be more muted than before.

Slowing growth in Singapore's major regional trading partners - China, Indonesia and Malaysia - will drag down expansion in the short term. They account for a third of Singapore's goods exports and are also significant sources of demand for services such as tourism.

These factors will contribute towards a modest growth rate of between 2 and 2.5 per cent for Singapore this year, the MAS said. The economy is expected to expand at a broadly similar pace next year.

In the longer term, however, Singapore should be able to ride on the region's push into high-tech goods and services. In particular, Asean neighbours such as Vietnam and Cambodia are set to become more deeply integrated into global supply chains. This should benefit Singapore's exporters and wholesalers, the MAS noted in the review, which documents its assessment of macroeconomic developments affecting the economy. Rising incomes in these economies will also raise the purchasing power of households, "which bodes well for Singapore re-exporters plugged into the consumption goods space".

The central bank also elaborated on the factors behind its monetary policy decision earlier this month to flatten only "slightly" the path of the Singdollar's appreciation.

A stronger policy easing "was clearly unwarranted, as the Singapore economy was neither experiencing an outright retraction in economic activity nor widespread price declines", MAS said.

It added that this policy stance will help maintain price stability in the medium term, more so as inflation is expected to rise gradually over the course of next year towards its historical average.

Economists said further monetary policy easing cannot be ruled out even though the MAS has strongly hinted that it is not on the cards.


A version of this article appeared in the print edition of The Straits Times on October 28, 2015, with the headline 'MAS sees few bright spots in the short term for economy'. Print Edition | Subscribe