HSBC Forecasts 7.3% Growth Next Year

Source : The Business Times, November 27, 2007

EVEN with rising inflation, the Singapore economy will grow 7.3 per cent in 2008, HSBC forecasts.

In a report on Asean inflation published last Friday, the bank's Asia economist, Robert Prior-Wandesforde, seems fairly optimistic about the impact of rising prices on the Singapore economy.

Energy price inflation is unlikely to explode, and probably neither will food prices, he says.

'Our guess is that inflation is more likely to come in at the lower half of the new range than the top half,' he adds, referring to the Monetary Authority of Singapore's revised inflation estimate of 3.5 - 4.5 per cent more for 2008.

The inflation rate accelerated to 3.6 per cent in October, and now averages 1.6 per cent for the first 10 months of 2007.

But MAS would be hard put not to further tighten monetary policy next April if the rise in the consumer price index does hit or breach 5 per cent in the first half of next year, Mr Prior-Wandesforde says. The worry is if wage growth - which averaged 8.5 per cent in the second quarter - picks up and creates big second-round inflationary effects.

This could be averted only 'if export growth and the economy as a whole weakens much more sharply than the government or anyone expects, perhaps as a result of a US recession', he says. Still, his forecast sees the Singapore economy growing 7.3 per cent next year - above the official estimate of 4.5-6.5 per cent.

Across Asean, higher currencies and falling metal prices will not blunt the impact of soaring oil and food prices, Mr Prior-Wandesforde says.

He reckons Indonesia faces the biggest risks, with headline inflation expected to run close to 10 per cent by end-2008. At the other end, Thailand seems 'safest' because consumption has slowed.