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SINGAPORE: The Singapore economy is likely to settle at a more gradual pace of expansion, with GDP growth in 2010 expected to be lower than in previous post-recession periods.
The Monetary Authority of Singapore (MAS) said in its Macroeconomics Review released on Thursday that compared to six months ago, the outlook for the second half of 2009 and for 2010 is "markedly more optimistic".
However, the MAS also sounded a word of caution in its report which is published twice a year.
"As we approach 2010, GDP growth will likely shift to a more sustainable trajectory, underpinned by a modest turnaround in final demand in Singapore's key external markets," it said.
It said concerns remain about the resilience of global demand, given the lingering weakness in the financial sectors and labour markets of developed economies.
Among Singapore's major trading partners, those that are expected to grow below their long-term trends next year account for nearly half of the island's total exports. The MAS said this points to domestic growth that is likely to be lower compared to previous post-recession periods.
External factors will also continue to influence the cost of living in Singapore, with the MAS expecting inflation to come in at around zero per cent in 2009, before rising to 1-2 per cent in 2010.
The MAS report said that the services sector will account for the bulk of Singapore's growth next year. And activities which rely on regional demand, like financial services, could see a firmer recovery. That is because of generally resilient labour markets and supportive fiscal stimulus measures in Asia.
Manufacturing, on the other hand, is set to recover at a moderate pace. In comparison, sectors like construction - which had been fuelled by a strong pipeline of projects before the recession - could see weaker growth going forward.
On the labour market, the MAS said that while Singapore's recovery from the downturn may become more broad-based, job creation could, nonetheless, be modest in 2010 as the relatively small job losses resulting from this downturn means that firms may be carrying surplus labour.
The central bank said the recovery in labour demand will be uneven across all sectors, and the outlook is most pessimistic for the manufacturing sector. It said that apart from the biomedical industry, which will see higher employment due to new investments, most manufacturing companies are not looking to hire next year. This is because of the uncertain business outlook.
But even as the Singapore economy recovers, MAS said the labour market faces some longer-term challenges, in particular the need to boost labour productivity.
Separately, the International Monetary Fund has upgraded its economic growth forecasts for Singapore for this year and 2010. It said Singapore's GDP is expected to grow 4.3 per cent in 2010, after contracting by 1.7 per cent this year.
Previously, the IMF had predicted that 2010 growth would be 4.1 per cent, after shrinking 3.3 per cent this year.
- CNA/sf/ir
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