Singapore economy seen to lose steam in 2011

GDP growth is poised to slip from 15% in 2010 to a mere 7% next year while inflation rate balloons to 3.2% from 2.8% as YoY growth moderates after a high base performance in 1H11.

DBS Bank said that while GDP growth in 2010 is on track to meet its double-digit forecast, the economy “will lose steam” in the coming quarters.

It noted, however, that sequential growth will not move at a snail’s pace, and will in fact rise faster than all current market expectations.

DBS expects the economy to grow at an average sequential pace of 8.7% (QoQ saar) in 2011 and deliver a 7% full year GDP growth, a figure it said is “stronger than our previous forecast of 4.5%”

Inflation, meanwhile, is seen to rise on account of higher wages, increase in asset, commodity and food prices, as well as capacity constraints and capital inflows. DBS said these factors “could have some unwanted spillover effects on domestic inflation going forward.”

With the looming rise in inflation and inflows, the bank sees the MAS’ monetary tightening policies to continue and expects policymakers to introduce various forms of capital control in the coming quarters.

“The bias on the MAS exchange rate policy is still towards more tightening, in line with the general view across the region,” DBS said.