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Singapore's economic growth over the coming quarters will be slower and steadier, with next year's expansion expected to come in lower than in previous post-recession periods as the external environment continues to pose challenges, the Monetary Authority of Singapore said Thursday.
The economy registered two quarters of double-digit sequential expansion and entered the recovery phase, the central bank said in its semi-annual review. GDP growth will possibly shift to a more sustainable trajectory in 2010, underpinned by a modest turnaround in final demand in Singapore's key external markets. The economy is likely to settle on a gradual expansion path, the report said.
Merely returning to trend growth in 2010 would still keep output levels at a trajectory below the path that would have prevailed in the absence of the sharp downturn. The MAS added that the economy would need to grow very rapidly to return to where output would have been without the crisis.
The central bank noted an 81% of sharp fall in private sector construction contracts during the first eight months of 2009. Construction activity remained weak, following a robust expansion since the second half of 2006. Activity might weaken into 2010 as several mega commercial and industrial projects reach completion.
Compared to the second quarter, a greater share of the economy expanded, spanning both the services and manufacturing sectors. Based on the early estimates, the services sector accounted for nearly half of the third GDP growth, a sharp contrast to the second quarter when the manufacturing sector was the dominant engine of growth. The services sector will account for the bulk of next year's growth.
The Ministry of Trade and Industry had raised the GDP forecast for 2009. The ministry estimates the city-state economy to shrink in the range of 2.5% to 2% this year compared with 4% to 6% contraction estimated in July. Annual growth was 0.8% in the third quarter of 2009, compared to a 3.2% contraction in the preceding quarter.
Elsewhere, the Washington-based IMF raised its economic outlook for Singapore. The lender now sees 4.3% growth next year, better than the 4.1% the lender estimated earlier this month. At the same time, economic contraction for 2009 was revised to 1.7% from 3.3%.
Today, the MAS said external factors like higher global oil prices are set to dominate the CPI inflation for the rest of 2009 and into 2010. Before rising to a range of 1% to 2% in 2010, it would possibly come in at around zero percent in 2009.
"MAS has taken a gradualist approach in its policy decisions over this exceptionally volatile and uncertain period", said the central bank. Earlier this month, it had maintained the current policy stance of a zero percent appreciation of the Singapore dollar nominal effective exchange rate or S$NEER policy path. The MAS also maintained the width of the policy band and the level at which it was centred.
Earlier this month, Prime Minister Lee Hsien Loong had extended the Jobs Credit Scheme that was set to expire in December, by another six months as complete withdrawal of the scheme would add pressure on companies. According to this scheme, businesses receive a cash grant based on the Central Provident Fund contributions they have made for their existing employees.
The unemployment rate had stabilized in the second quarter following five straight quarters of increase. The jobless rate stood at a seasonally adjusted 3.3% in second quarter, the highest since the June quarter of 2005. The third quarter quarter unemployment data is due on October 30.
The central bank said, "With the expected modest job creation into 2010, wage growth is likely to turn positive, but will remain fairly subdued." Wages declined by an annual 3% in the first half of 2009.
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