Sat, Oct 15, 2016 - Page 10 News List

Singapore withholds stimulus as economy shrinks

TAKING CHARGE:The government said it is confident that the city-state would not fall into a recession this year, turning the focus on fiscal policy to support the economy

Bloomberg

Singapore held off on monetary stimulus, saving its ammunition for next year as the export-oriented economy contracted the most in four years in the face of weak global demand.

After easing twice last year and again in April, the Monetary Authority of Singapore (MAS) yesterday said a neutral stance would be needed for an extended period.

The MAS also said growth in the city-state will not pick up significantly next year, after a report showed GDP shrank an annualized 4.1 percent in the third quarter from the previous three months, worse than the most pessimistic forecast in a Bloomberg survey.

Singapore’s economy is more volatile than larger counterparts and more closely tied to trends in global trade, which has seen subdued expansion in recent years.

The MAS said it will maintain a policy of zero-percent appreciation in the exchange rate, in line with expectations of 21 of 24 economists surveyed by Bloomberg.

The contraction in GDP last quarter compared with a revised 0.2 percent expansion in the second quarter, the Singaporean Ministry of Trade and Industry said.

The city-state is likely to feel more pain from China’s slowdown in the coming quarters, said Vaninder Singh, a Singapore-based economist at Royal Bank of Scotland Group PLC, adding that the MAS is set to ease again in April.

The government has said it is confident the economy will avoid a recession this year, taking some pressure off the central bank to act after it eased policy in April.

It also turns the focus to fiscal policy to help cushion the economy, said Brian Tan, a Singapore-based economist with Nomura Holdings Inc.

“Next year we should see a bit more fiscal support,” Tan said. “There’s definitely room for greater spending.”

The MAS has two scheduled policy announcements a year, one in April and the other in October.

Consumer prices have declined every month since November 2014, reflecting the effect of lower oil costs and a weaker property market, and dropped 0.3 percent in August.

The MAS said inflation has “troughed” and expected to come in at 0.5 percent to 1.5 percent next year.

The core inflation measure, which excludes the costs of accommodation and private road transport, will “rise only gradually next year,” it said.

The manufacturing industry plunged an annualized 17.4 percent in the third quarter from the previous three months, weighed down by the transport engineering, biomedical and general manufacturing sectors, the ministry said.

The services industry, which makes up about three-quarters of the economy, contracted an annualized 1.9 percent.

“Growth in the Singapore economy weakened and is not expected to pick up significantly in 2017,” the MAS said in a statement.

GDP growth for the year will be closer to the lower end of the 1 to 2 percent forecast range and only slightly higher next year, it said.

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