Chart of the Day: Take a look at the drop in Singapore’s GDP momentum

It will likely continue to perform below trend.

Singapore’s economy is facing both structural and cyclical headwinds. On the structural level, the government is pursuing an economic restructuring that seeks to boost productivity and create a ‘knowledge-based economy’, to counter the severe demographic and land constraints, according to a report by HSBC.

HSBC adds that the simultaneous curbs on foreign workers adds a degree of haste to the rebalancing process, as wages are starting to increase and productivity gains are not yet adequate to offset this.

A tangible short-term side-effect has been sticky core CPI, which is likely to persist into 2015 and will be the main focus of monetary policy, given the MAS’ forward-looking track record.

Here’s more from HSBC:

The cyclical woes derive from the external sector and weak global import demand, but there is also a structural component to trade, especially in the dominant electronics sector. Singapore’s non-oil domestic exports (NODX) have faced considerable difficulties as electronics exports have declined for 25 consecutive months, in contrast with the relatively strong momentum in Korea and Taiwan.

The overarching risk is that the aforementioned high wages, coupled with the excess capacity, continue to drag down domestic exports for a longer period than expected. Together with a soft property market and rising unit labour costs in services industries, GDP faces downside risks.