Central bank fears electronics drag on Singapore growth
SINGAPORE, April 30 — Singapore’s economic recovery is likely to be muted with continued weakness in electronics a drag on growth, the central bank said today, painting a less rosy picture of the economy compared with other forecasters.
“Despite the rebound in Q1, the pace of recovery for the rest of the year is expected to be relatively subdued,” the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review issued today.
“The recovery largely reflected the normalisation of production activities following the series of regional supply-related shocks in 2011,” the central bank added.
MAS’s view contrasts with the results of a survey released today by Singapore’s main economic development agency, which showed manufacturers in the city-state have become more optimistic about prospects in the six months ending in September.
“Overall, a weighted 19 per cent of manufacturers foresee an improved outlook while a weighted 4 per cent predict deterioration,” the Economic Development Board said. The majority had expected conditions to worsen in the previous quarterly survey.
“This optimistic outlook is led by the semiconductor segment, which anticipates improved global demand for chips in the months ahead as inventory levels are adjusted downwards,” it added.
However, the central bank’s view is consistent with employment data that showed the manufacturing sector shed 500 jobs in the first quarter, pushing the jobless rate higher to 2.1 per cent from 2.0 per cent in October-December.
MAS earlier this month surprised financial markets by saying it would tighten monetary policy slightly because of persistent inflationary pressures.
The move came as data showed the economy expanded 9.9 per cent in the first quarter on an annualised and seasonally adjusted pace from October-December, beating forecasts.
The government’s latest forecast is for economic growth of 1 to 3 per cent this year, with headline inflation expected to come in at a higher 3.5 and 4.5 per cent, indicating the difficulty faced by MAS as it tries to stem price pressures without hurting exporters.
Several economists have predicted Singapore’s growth this year could exceed the official forecast, citing the recovery in manufacturing and still buoyant services and domestic demand.
On electronics, MAS said the first-quarter upturn was largely due to transitory factors such as the recovery in disk-drive production after flooding in Thailand shut many factories late last year, disrupting global supply chains.
“The export price erosion appears to be starker in Singapore compared to the rest of the region,” it added, noting the city-state’s electronics companies produced “midstream” products such as semiconductors and disk-related parts that face greater pricing pressures than completed goods.
Electronic manufacturers also faced “pronounced cost pressures” from the tight job market and higher foreign worker levies as well as a hefty 17 per cent rise in electricity prices last year, the central bank added.
“Trade-related services could see a slower upturn compared with the more sanguine prospects for the domestic-orientated sectors,” it said.
Turning to inflation, MAS reiterated its latest forecasts and said higher wages and global oil prices will put upward pressure on prices. Inflation will remain elevated and ease only gradually over 2012.
The central bank, which had previously pegged 2012 inflation at 2.5 to 3.5 per cent, added that business costs were likely to rise as Singapore made it harder for companies to bring in cheap foreign labour.
MAS said headline inflation across the region is expected to ease slightly as a result of the high base in 2011.
“(But) with many economies currently operating close to potential output, a resurgence in global economic growth could cause underlying price pressures to intensify.” — Reuters