Why non-residential investment is key to a flourishing Singapore economy

Arguably the most important domestic factor.

Maybank Kim Eng said non-residential investment will be the key growth driver to Singapore, not only in restructuring the economy, but also in boosting productivity, efficiency and competitiveness. Of course, external demand will continue to play a big role, with the research firm anticipating "mildly better external demand conditions" in the coming quarters.

Here's more from Maybank:

Apr 2013’s industrial output offers hope of further improvement in quarterly GDP. The positive start to 2Q 2013 in industrial output and the moderation in inflation rate are encouraging for the “embattled” Singapore economy whose growth has been lackluster amid the external and internal challenges that include fragile global economy, rising costs of living and doing business, tight labour market and ageing population.

Maintain our 2013 real GDP forecast of 2.3%. Singapore’s economic growth will gradually improve as the year progress on a mildly better external demand conditions. The US economy is expected to ride through the tax increases and sequestration enacted last quarter as the recovery in the job and housing markets support consumer spending and lift business spending that was dampened by the earlier “fiscal cliff” uncertainty. In addition, the outlook of a stimulus-driven growth in Japan is emerging given the “technical recovery” following the two consecutive quarters of sequential GDP expansions in 1Q 2013 and 4Q 2012 that reversed the “technical recession” in 2Q-3Q 2012. Amid the stagnant Europe, which is already “priced in”, the real wildcard in the global economy, and hence external demand, outlook right now is China. Domestically, non-residential investment will be a key growth driver to restructure the economy and boost productivity, efficiency and competitiveness amid the continued exchange rate policy and tightening of foreign workers policy. Official growth forecast for this year remains at 1%-3%.

No change in our 2013 inflation rate forecast of +3.8% (2012: +4.6%). Inflation will be driven by mainly domestic factors especially by the interplay between the upward pressures from the tight labour market and the rise in business operating costs as foreign workers’ levy are hiked in Jan 2013 and July 2013, and the downward pressures from the impact of MAS and Budget measures on property prices, COE premiums and living costs. Meanwhile, the continuation of MAS’s exchange rate policy of gradual SGD appreciation plus the soft global commodity prices – and hence world inflation – should keep imported inflation in check. Official forecasts for 2013 headline and core inflation rates remained at 3.0%-4.0% and 1.5%-2.5%.