2012 forecast: Economy could do better than expected

Singapore's economy may grow more than previously estimated this year, spurring inflationary pressures, a Monetary Authority of Singapore (MAS) survey of economists showed.

Gross domestic product may increase 3 per cent this year, compared with last quarter's survey for a 2.5 per cent gain, according to the median estimate of 21 economists and analysts, in a survey by MAS released yesterday.

Consumer prices may rise 4.2 per cent this year, they predicted, higher than the 3.5 per cent rate forecast in March.

Singapore said in April it will allow faster gains in its currency to dampen price pressures, diverging from most other Asian central banks that had left borrowing costs unchanged or eased monetary policy.

The economy grew faster than initially estimated last quarter, and the Government said last month that momentum had picked up, even as downside risks persist.

"We continue to expect decent overall growth in Singapore" once the United States and China regain some momentum in the second half, said Mr Vincent Conti, a Singapore-based analyst at ANZ, in a report on Tuesday.

GDP may increase 2.8 per cent this quarter from a year earlier, compared with 1.6 per cent growth in the three months ended March, economists in the MAS survey predicted.

The Government forecasts GDP growth of 1 per cent to 3 per cent this year. The economy may expand 4.5 per cent next year, the economists said.

The MAS, which uses the exchange rate to manage inflation, said in April it will increase "slightly" the slope of the currency trading band, and raised its forecast for consumer-price gains to 3.5 per cent to 4.5 per cent this year.

It guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of the band.

The Singapore dollar may strengthen to S$1.243 against the US dollar by the end of this year, the economists surveyed said, from S$1.2824 as of 11.25am local time yesterday. In March, they predicted an exchange rate of S$1.23 by year-end.

The Singapore dollar has gained about 1 per cent this year, the second-best performer in a basket of 11 Asian currencies tracked by Bloomberg.

Non-oil domestic exports may climb 5.6 per cent this year, more than the 4.2 per cent estimate in the previous survey, the report showed. Singapore's export growth quickened last month as shipments of electronics and pharmaceuticals increased.

The jobless rate may climb to 2.2 per cent by the end of the year, from 2.1 per cent last quarter, the survey showed.

"Labour-market tightness remains a structural issue, as the authorities continue to put restrictions on foreign labour in the midst of close-to-full domestic employment," Mr Conti said.

"This is part of the Government's shift to a productivity driven rather than labour-driven growth model, but adds to inflation risks in the short run."

The Singapore dollar may strengthen to S$1.243 against the US dollar by the end of this year.