IMF describes uncertainty for Singapore as extraordinary

It said growth is expected to slow significantly in 2012, driven down by softening external demand and global financial volatility.

Following the conclusion of the Article IV consultation with Singapore by the Executive Board of the International Monetary Fund, IMF said, “Executive Directors commended the authorities for proactive macroeconomic and financial policies, which have underpinned a strong rebound in activity. Directors noted that Singapore’s economic growth is likely to slow in the near term amidst an unsettled global environment, and that significant downside risks weigh on the outlook. Nevertheless, they agreed that Singapore has sufficient policy room and tools to cushion the impact of external shocks and preserve macroeconomic stability.”

Here’s more from IMF:

Bouts of global financial market turbulence in the second half of 2011 led to a decline in Singapore’s stock market index, a depreciation of the Singapore dollar, and episodes of heightened volatility in equity and currency markets.

Domestic credit, however, has been expanding rapidly, particularly business loans, reflecting in part the strong economic recovery but also low interest rates and rising credit demand from the Asia region. Public and private residential property prices have also been growing rapidly, leading to a decline in house affordability, although housing prices and transaction volumes have moderated recently.

Despite these developments, the financial system has remained sound, with domestic banks maintaining strong capital and liquidity positions, and non-performing loans remaining low. The aggregate balance sheets of the corporate and household sectors are also strong.

The near-term outlook is clouded by an extraordinary degree of uncertainty. Growth is expected to slow significantly in 2012, driven down by softening external demand and global financial volatility. Against the backdrop of a weaker external and domestic outlook, headline inflation is also expected to ease sharply in 2012.