The Singapore economy has continued to show strong growth this year, surprising even the experts.
Economists have had to revise their forecasts upwards several times over the course of 2007. The latest MAS survey of professional forecasters showed they expect the economy to grow by 8 percent for the full year, up from the 7.5 percent predicted three months earlier.
Analysts are keeping a positive tone for 2008, although there are downside risks.
Jimmy Koh, Head of Economics-Treasury Research, UOB, said: "The construction side will continue to outperform... services side, I think, will be fine. We're still getting about 7 to 8 percent growth. Manufacturing is still going through structural changes. I think getting about 5 to 6 percent growth should not be difficult. I think one of the main risks going forward for Singapore economy is how the global environment will look like."
A potential spanner in the works next year could be the continued fallout from the US housing credit crisis - with the US economy expected to see a slowdown.
Economists said Singapore's open economy will not be spared but the effect might be delayed till the second half of 2008, buffered by diversified growth drivers and strong domestic demand.
Chua Hak Bin, Director of Asia Pac Economic & Market Analysis, Citigroup Global Markets Singapore, said: "We like the domestic demand a lot more. We are probably still fairly positive on the marine offshore engineering side. That sector is driven less by the US business cycle, it's more dependent on what's happening in oil prices and oil prices remain pretty elevated.
"I think it looks like a demand from oil and all that will remain pretty high given the pace at which China and India is going. The other sector is banks."
But along with robust growth, Singapore has seen its highest inflation rate since 1994 at 2.9 percent in August.
This is expected to hit as high as 5 percent in the first six months of 2008 before easing off in the second half.
Higher food prices, in particular, are seen to be taking a toll on the lower income group.
But analysts said the government can afford to be generous.
"I think the good news is, with the GST hike last year, the windfall from the fiscal side has been tremendous. The government has been raking in (a lot) in terms of tax revenue and so on, so the government actually has a lot of room to be a lot more generous... to provide help and rebates for the low-income group (that is) really struggling with a high cost of living, so we should see some handouts on that front," said Chua.
And while rising rents and business costs are on the watchlist, economists do not expect this to erode Singapore's competitiveness - yet.
Koh said: "It's important to note that globally, we're not seeing a runaway in inflation. Two things - global technological advancement has increased productivity in every area and able to bring prices down significantly; at the same time, you have low-cost centres like China and India entering the global system. These factors will, by and large, put a cap on broad-based, non-food inflation globally."
The government expects the Singapore economy to grow by between 4.5 and 6.5 percent in 2008. Inflation next year is forecast to hit 3.7 percent, up from 2 percent this year. - CNA/so
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