2013 economic growth may dip below potential rate: MAS

But employment will remain at full swing.

According to MAS Macroeconomic Review, growth in 2013 is likely to come in slightly below the economy’s potential rate, but the level of output should remain above its underlying potential and the economy hence continue to be at full employment.

Growth will be supported by domestic–oriented activities such as construction, and some pickup in tourism and financial services. Manufacturing and related industries are likely to regain some traction in the latter part of 2013, barring further adverse developments in the external environment.

Imported price pressures have generally been muted in recent quarters, in line with the weaker external environment and the appreciating Singapore dollar.

Nevertheless, domestic costs continued to rise amid a tight labour market. Unit labour costs increased due to weak productivity growth in the services sectors.

Looking ahead, imported inflation, while broadly benign, will be susceptible to temporary spikes in food prices due to weather-related disruptions. Domestic supply-side factors will become more binding.

In particular, persistent tightness in the labour market will support slightly stronger wage increases in 2013, which will continue to be passed through to consumer prices.

MAS Core Inflation is expected to average around 2.5% in 2012 and 2–3% next year.

CPI–All Items inflation will remain elevated in Q4 2012 and Q1 2013, reflecting significant contributions from imputed rentals on owner-occupied accommodation and car prices, before moderating gradually over the rest of 2013.

For the full year, CPI-All Items inflation is likely to come in slightly above 4.5% in 2012, mainly because of higher COE premiums. It is expected to ease gradually to 3.5–4.5% in 2013. Imputed rentals on owner-occupied accommodation and car prices will account for slightly over half of CPI–All Items inflation in both years.