HSBC: Singapore's economic growth set to slow in 2011

The Monetary Authority of Singapore (MAS) will remain in tightening mode, according to HSBC, adding that the series is unstable and follows a big leap in January.

Much of the boost in production in anticipation of the Lunar New Year would have occurred in January.

Last year, when the Lunar New Year fell in the mid-February, some of the pre-festive front-loading would have happened in February. This would seem to have pushed both month-on-month and year-on-year growth rates down this year and further than expected.

HSBC noted that while it is too early to estimate the effects of the tragedies in Japan, they are expected to have an impact on Singapore's exports and production in the short term.

Assuming, however, that the Japanese nuclear risk is curbed, growth in Japan is expected to recover relatively quickly as reconstruction progresses and factories resume production.

Still, Singapore's economic activity, such as industrial production, is expected to slow down in 2011, following the previous year's steep climb when the country's economy was boosted by the normalisation in global trade.

Also, amid the ongoing instability in the Middle East, increased oil prices will unlikely have an effect on sentiments in the coming months. Despite the slowdown to a more sustainable expansion rate, however, the economy will likely continue to operate at or above its potential, keeping capacity tight.

This is in addition to inflation, wage pressures and higher foreign commodity prices.

The MAS will, therefore, remain in tightening mode and is expected to re-centre in April.

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