Singapore GDP feared to grow below trend at 3% in 2013

Inflation may drop to 3.3%.

According to Barclays' Singapore economist, Wai Ho Leong, Singapore GDP will grow below trend at 2% in 2012 and 3% in 2013. This reflects ongoing structural constraints to global and domestic growth – fiscal consolidation in Europe and the US, rebalancing in China, and a tight foreign labour policy in Singapore.

Here's more from Wai Ho Leong:

We forecast headline inflation to drop from 4.5% this year to 3.3% next year and the central bank’s core measure (which excludes costs of accommodation and private road transport) to moderate from 2.6% this year to 2.2% next (vs. the historical average of 1.7%).

The positive output gap should close by mid-2013, from about 0.8% in 2012, based on our forecasts. Thus, demand-pull inflationary pressures are expected to moderate.

However, structural cost-push factors – such as the tightening of foreign labour policy, global price increases for grain commodities and crude oil, and supply constraints in housing and car ownership licenses – should keep inflation elevated from a historical perspective.

In 3Q12, the GDP growth advance estimate (based on July and August data) showed that the Singapore economy shrank by 1.5% q/q saar.

The contraction was led by the manufacturing industry (-3.9% q/q saar).