Singapore Growth, Low CPI Keep Markets Guessing on Next MAS Move
Economic growth, coupled with subdued inflation, complicates timing of monetary policy tightening in Singapore.
(Bloomberg) -- Faster economic growth, coupled with subdued inflation, complicates the timing of monetary policy tightening in Singapore.
Data on Thursday showed the economy expanded at its fastest pace in more than three years in the third quarter, and that the recovery has broadened out from export industries to the services sector. A separate report showed consumer prices continued to pick up, though remained moderate.
“We see the Monetary Authority of Singapore exiting from their neutral policy stance only at their October 2018 meeting,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “It will take a while before stronger economic growth feeds through into inflation pressure given the current slack in the labor market.”
A healing in global trade this year has helped boost export-reliant economies like Singapore’s, with manufacturing buoyed by demand for electronics goods. A rebound in services industries, which make up about two-thirds of the economy, is giving economists reason to upgrade their full-year projections. The government on Thursday raised its forecast for growth this year to as much as 3.5 percent.
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The labor market remains somewhat weak amid sluggish hiring, though has shown improvement in the third quarter from earlier in 2017. The MAS and trade ministry said in a joint report on Thursday that wage pressures will remain subdued in the near term as previous slack in the economy is absorbed.
Singapore’s central bank left its policy stance unchanged last month, but gave itself room to tighten if necessary. Jacqueline Loh, deputy managing director at the Monetary Authority of Singapore, told reporters on Thursday that the October stance remains appropriate and the regulator will continue to monitor developments.
Michael Wan, an economist at Credit Suisse Group AG in Singapore, said upside inflation risks such as oil prices and potential tax changes could force a faster tightening cycle.
“The Monetary Authority of Singapore might want to tighten pre-emptively to lower risk of imported inflation,” Wan wrote in a note before the inflation data was published. He added that his base case is for policy makers to keep their stance unchanged in April.
Growth has been surprisingly strong across Southeast Asia, with third-quarter data from the Philippines and Malaysia last week and Thailand this week exceeding forecasts, providing a more upbeat tone to the region as the U.S. Federal Reserve tightens monetary policy.
“The synchronized global recovery has legs,” said Chua Hak Bin, a Singapore-based senior economist with Maybank Kim Eng Research. A rebound in corporate spending in many economies, including in Southeast Asia, portends that “this investment revival will be the theme that will emerge in 2018.”
Singapore’s export growth is set to taper off next year, with International Enterprise Singapore forecasting expansion of zero to 2 percent in 2018, compared with an estimated 6.5 percent to 7 percent for this year.
| What Our Economists Say |
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| Tamara Henderson: On a GDP-expenditure basis, net exports were a slightly stronger drag on growth. But this was offset by much stronger household spending. Public spending was also much stronger, and the contraction in investment was not as large. If this is sustained in 4Q 2017 and 1Q 2018, the MAS is likely to dial back its monetary stimulus. |
Manufacturing surged almost 35 percent in the third quarter from the previous three months, while the services industry grew an annualized 3.2 percent. Construction continued to suffer, contracting for a third quarter by 5.3 percent.
“We also see signs that the recovery is broadening,” with business services and retail looking better even though third-quarter growth was “primarily supported by manufacturing,” Loh Khum Yean, permanent secretary at the trade ministry, told reporters.
--With assistance from Myungshin Cho and Ailing Tan
To contact the reporter on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net.
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Chris Bourke
©2017 Bloomberg L.P.