Singapore Lifts Forecasts For Growth And Inflation

Source : Bloomberg News, 20 November 2007

The city-state raised its economic growth and inflation forecasts as financial services expanded the most in a decade, boosting property prices and bank lending.

Singapore's economy would expand as much as 6.5% next year, higher than an earlier estimate of 6%, the trade ministry said in a statement yesterday. Still, growth in 2008 will ease from between 7.5% and 8% this year.

Financial services, including wealth management and stockbroking, jumped 19.9% in the third quarter from a year earlier, withstanding a slump in global credit markets that has triggered about US$45bil in writedowns among the world's largest banks.

The Singapore dollar rose after the government increased its forecast and said inflation may accelerate to as much as 4.5% next year.

"There is a lot of pressure coming from wages and rentals," said Alvin Liew, an economist at Standard Chartered Bank in Singapore. "We are somewhat due for a moderation in growth, and are probably looking at a slowing down in the first half of next year."

The average monthly wages climbed 8.5% in the second quarter, the fastest since 2000, according to the manpower ministry. Office rents in Singapore's central business district have risen to record levels and private home prices have climbed every quarter in the past 3½ years.

Inflationary pressures are rising as the economy expands, prompting the central bank last month to say it will allow a faster appreciation in its currency. Inflation is expected to accelerate to as much as 4.5% in 2008 from an average 2% this year.

The Monetary Authority of Singapore said yesterday its currency band, which will be reviewed in April, remained "appropriate".

The Singapore dollar has gained 5.8% this year against the greenback.

Singapore's Gross domestic product would probably increase at the "upper end" of a 7.5% to 8% range in 2007, the trade ministry said in yesterday's statement, boosting the lower end of its forecast from 7%.

Services climbed 8.3% in the third quarter from a year earlier, while the construction industry grew 17.7% in the same period, according to yesterday's report.

The growth in the services and construction industries has helped lessen the impact of a weaker performance in manufacturing, dampened by electronics exports, which are mired in their worst slump in 5 years.

"The labour market is booming, tourist arrivals are at record levels, hotels are full and we are seeing strength across a broad swathe of service activities,'' said Song Seng-Wun, an economist at CIMB-GK Research.