Singapore economy slowed by weaker global demand – IMF

WASHINGTON, (Reuters): Singapore’s economy is set to weaken this year on the back of weaker global demand and related international financial and trade strains emanating from the euro zone debt crisis, the International Monetary Fund said on Monday.

“Under the benign global baseline scenario, growth is forecast to soften this year to just below 3 per cent, with a moderate increase in 2013,” the IMF said in its annual review of Singapore’s economy. The IMF sees growth in Singapore rising to about 3.5 per cent next year.

The IMF said Singapore had ample policy room and other protective measures to deal with the effects of a slowing economy. The current account surplus is likely to narrow slightly to about 21 per cent of gross domestic product, the fund said.

It said inflation, which is currently at around 4.5 per cent, would likely remain under pressure and should be allowed to rise temporarily to accommodate price changes from tighter labour markets. Other sources of inflation, including from transport costs, credit growth and asset prices, should be “forcefully tackled,” the IMF added.

Singapore’s authorities believe that the biggest risk to the outlook would be if the situation in the euro zone deteriorates further and there is a sharp downturn in China, the IMF said.

“A sharp slowdown in China would also be problematic through trade and tourism channels, but the authorities view a soft landing as their base case,” the Fund said following the annual consultations with the government.

The Fund said the shedding of assets by European banks from Singapore since 2011 has not created visible strains to the financial sector but should be monitored closely.