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MAS Says Electronics to Drag Singapore GDP Growth in 2012


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by Ernie B. Calucag

The Monetary Authority of Singapore (MAS) painted a less rosy picture of the economy for 2012, saying growth for the rest of the year is likely to be muted by a weaker electronics sector despite the surprise GDP rebound in the first quarter.

“Despite the rebound in 1Q2012, 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 on Monday.

Singapore’s first-quarter GDP grew 9.9 per cent quarter-on-quarter and 1.6 per cent year-on-year. MAS said the recovery “largely reflected the normalisation of production activities following the series of regional supply-related shocks in 2011,” such as the Thai floods last year.

The central bank is sticking to its forecast that Singapore’s GDP growth will be modest, at between one per cent and three per cent this year. It noted that trade-related activity is likely to remain “sluggish”, particularly in the electronics sector.

The electronics industry is a major contributor to Singapore’s GDP – in 2011, it contributed to 6.1 per cent of GDP. Of the S$13.7 billion fixed asset investment Singapore received last year, electronics was the largest contributor, accounting for almost 54 per cent.

With the traditionally-strong electronics sector muted this year, the central bank said that growth will instead be anchored by domestic and regional services, such as tourism and the financial industry.

“Trade-related services could see a slower upturn compared with the more sanguine prospects for the domestic-orientated sectors,” MAS added.

In its half-yearly Macroeconomic Review Paper, MAS also said that inflation in the country will remain elevated and ease only gradually over 2012. Business costs, it added, are likely to rise as Singapore makes it harder for firms to bring in cheap foreign labour.

The central bank now expects CPI-All Items inflation to be 3.5-4.5 per cent for the year while core inflation (which excludes accommodation and private road transport) will likely be in the 2.5-3.0 per cent range, both up 1 percentage point from previous forecasts.

“The revision in the CPI-All Items inflation forecast reflects higher-than-expected contributions from prices of cars, services and oil. Accommodation cost will still be the largest contributor, adding more than one-third to CPI-All Items inflation in 2012, while prices of cars, services and commodity-related items will each account for one-fifth,” MAS said.

Singapore’s Consumer Price Index rose by about 5.2 per cent in March 2012, compared to a year ago.

More than half of the headline inflation rate, came from higher COEs for cars and the effect of higher market rent on houses.