Friday, July 17, 2009

No decisive economic recovery

THE Monetary Authority of Singapore believes the local economy is likely to see slow and uneven economic growth instead of a sharp and decisive recovery.

The sober outlook is despite recent data showing a sharp rebound in second-quarter growth and the Government's upward revision of its growth forecast.

The MAS cited stresses in the global financial system and weakening job markets in the major economies in reaching its cautious prognosis.

'We should not expect a decisive or straight line rebound,' MAS managing director Heng Swee Keat said yesterday.

'This year, eight out of our 10 top trading partners are expected to be in outright recession.' Only five out of the top 10 trading partners were in recession during the Asian Financial Crisis.

Yesterday, the MAS raised its 2009 inflation forecast slightly due to recent changes in commodity prices.

It added that its policy stance on managing the Singapore dollar, announced in April, was appropriate.

The central bank now expects full-year inflation to be centred around zero, tipping the consumer price index to come in between -0.5 per cent and 0.5 per cent instead of its previous forecast of between -1 per cent and 0 per cent.

Mr Heng said: 'This revision takes into account the recent developments in global commodity prices.'

Broadly, commodity prices are well up after slumping as the financial crisis took hold late last year.

In May, consumer prices here were 0.3 per cent lower than a year earlier, a far cry from when inflation peaked at 7.5 per cent last year.

Although the economy rebounded sharply in the second quarter, Mr Heng said growth remains below trend and inflationary pressures remain muted.

MAS also said its next monetary policy review will take place as scheduled in October. In April, it lowered the band in which the Singdollar trades against a basket of undisclosed currencies of trading partners by a notch, while keeping a 0 per cent appreciation path.

Mr Heng said: 'The current policy stance remains appropriate to support the economic recovery and ensure medium-term price stability, which in turn underpins confidence in the Singapore dollar.'
Source: Straits Times, 17 July 2009

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