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MAS Warns of a Global Economic Slowdown

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by Ernie B. Calucag

The Monetary Authority of Singapore (MAS) has warned of a global economic slowdown in the near term.

In a report on Thursday, the central bank pointed to renewed uncertainty stemming from the eurozone debt crisis, a flagging recovery in the US, and deepening slowdowns in China and India as posing significant headwinds to near-term global economic growth.

Despite this, MAS still expects Singapore economy to grow by a modest 1-3 per cent this year, to be driven by domestic and regional-oriented industries such as construction and tourism.

“A strong pipeline of building projects will boost the construction sector and provide support to construction-related lending activities. Further, the tourism-related industries should continue to grow on the back of firm visitor arrivals from the immediate region,” MAS said in a report.

Unlike the previous years, the central bank noted that Singapore’s economy cannot greatly rely on manufacturing, particularly electronics, given the persistent inventory overhang in the global semiconductor industry.

“Fresh uncertainties arising from the eurozone debt crisis have rattled business sentiment and could weigh further on production. While there were tentative signs of improvement in 1Q2012 alongside easing shortages in the regional hard disk drive production network, recent indicators point to a slight pullback in activity in April, in line with renewed caution in the external environment,” MAS said.

In Asia, the expected slowdown in China’s growth could potentially affect manufacturing activity in the rest of the region, including Singapore.

MAS said trade-oriented Asian economies are likely to see activity moderating for the rest of the year.

However, resilient domestic demand will provide some support.

On inflation, MAS is keeping to its forecast average inflation of between 3.5 per cent and 4.5 per cent in 2012.

It said cost of accommodation and cars will together account for more than half of CPI-All Items inflation, while services and commodity-related items will each account for one-fifth.

Given the still elevated and volatile inflation, the central bank said its most recent adjustment in policy stance will continue to anchor inflation expectations, ensure price stability over the medium-term, and keep GDP growth on a sustainable path.