Inflationary pressures likely to persist in 2H

Positive macro trends however are seen despite inflationary risk.

Here's a view from MayBank KimEng chief economist Suhaimi Ilias:

We see Singapore’s macroeconomic trends as positive, with the GDP expected to grow by 3% in 2012 and Budget 2012 being supportive of domestic demand. In addition, domestic returns are backed by a strong Singapore Dollar, which is expected to appreciate and help counter the effects of inflationary pressures.

GDP to grow at 3%. Singapore’s real GDP is expected to expand by 3% in 2012 (2011: 4.9%) amid moderating growth in the global economy (2012E: 3%; 2011: 3.9%) and cooling measures at home to curb property speculation and prices. Our forecast is at the top end of the official projection of 1-3%. Overall, growth will be supported by the services and pharmaceuticals industries, with the electronics sector, which suffered a prolonged contraction last year, likely to benefit from the outlook for continued US growth.

Budget 2012 supportive of domestic demand. In February, the government unveiled its Budget 2012, which contained a slew of measures supportive of domestic demand, namely, allocations for social safety nets, healthcare and welfare benefits targeting the older generation, the lower- and middle-income groups, and the disabled to address the issue of high living costs. Moreover, the absence of strong countercyclical measures such as tax cuts and pump-priming in the Budget indicates that the government is confident of the economy continuing to register real GDP growth this year.

Appreciating Singapore dollar. At the same time, with the balance of risks somewhat skewed towards concerns about the inflation outlook rather than growth in the medium term, the Monetary Authority of Singapore (MAS) has, at its policy review last month, maintained its “modest and gradual” appreciation of the SGD but slightly steepened the mid-point of the SGD NEER curve and narrowed the trading band slightly.

Inflation to be sustained. Inflationary pressures are likely to persist in the remainder of 2012 on the back of an expected growth recovery in 2H as well as attendant domestic cost pressures from a continued tight labour market, tightening of government administrative measures in the wake of supply-side economic restructuring (ie, productivity transitional phase) and somewhat sustained asset price pressures.