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Singapore economy on track to meet growth forecast, MAS says

Core inflation, while higher than the historic average, remains well contained, MAS Managing Director Ravi Menon says.

SINGAPORE: The Republic’s economic growth momentum slowed in the first half of this year but the city-state is on track to grow by 2 to 4 per cent this year, the Monetary Authority of Singapore (MAS) said on Thursday.

It also said that core inflation in Singapore – while higher than the historic average – remains well contained.

Speaking at the release of MAS' annual report for 2013/14 financial year on Thursday (July 24), Managing Director Ravi Menon said the external environment was generally favourable with recent US economic data indicating continued economic expansion, while China's economic growth is also intact.

The central bank did add that geopolitical risks are larger than macroeconomic risks this year, and said it is closely monitoring the ongoing conflicts in the Middle East and Ukraine.

"Should the conflicts intensify or drag on, they could adversely impact confidence, generate financial market instability, increase global oil prices, and these would in turn affect Singapore's growth," said Mr Menon.

"Barring a significant escalation in these geopolitical conflicts, moderate spillovers to Singapore from these developments externally should be accommodated within the current forecast range of 2 to 4 per cent growth," he added.

Singapore's domestic-oriented sectors should stay resilient though, he said, citing as an example the pipeline of infrastructure projects to support the construction sector. Healthcare services, financial intermediation and business services should do well too, even as the manufacturing sector continues to restructure.

One analyst said the rise of manufacturing services will provide opportunities.

Associate Professor of Finance at Singapore Management University (SMU) Annie Koh said: "You are going to see pockets of growth. So if oil and gas is a growth area, then the engineering services that are supporting the oil and gas industry will grow as well. A lot of the engineering services will look like manufacturing, but they are actually in the services sector. We are actually an interesting hybrid."

MAS also said Singapore's financial centre continued to perform well in 2013. For example, the fund industry saw assets under management grow some 12 per cent to S$1.82 trillion, it said.

SINGAPORE CANNOT BE COMPLACENT ABOUT INFLATION

Turning to inflation, Mr Menon said Singapore should not be complacent about price pressures just because headline inflation has fallen below 2 per cent. MAS aims to keep core inflation expectations anchored at about 2.5 per cent, he added.

Singapore's consumer price index (CPI) rose 1.8 per cent in June from a year ago, slowing from May's 2.7 per cent pace as car prices rose at a slower pace, the Department of Statistics said on Wednesday.

But core inflation – which excludes changes in the price of private road transport and accommodation since these are influenced more by government policies – rose 2.1 per cent year-on-year in June, just a touch slower than May's 2.2 per cent gain.

Mr Menon said MAS's current policy stance of allowing a modest and gradual appreciation of the local dollar – which has been in place since April 2010 – will ensure core inflation stays within 2 to 3 per cent this year.

DBS on Wednesday became the latest financial institution to downgrade its 2014 growth forecast for Singapore, citing a tepid performance in the manufacturing sector and a persistent deceleration in services. The bank now expects full-year economic growth of 3 per cent, down from its previous prediction of 4 per cent.

Singapore's economy grew an average of 3.4 per cent in the first six months of this year from a year ago.

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