Singapore's domestic restructuring feared to weigh on economic growth

GDP to grow at a modest pace this year.

According to ADB's report, Singapore GDP will continue to grow at a modest pace in 2014 and 2015. This highly trade-dependent economy will benefit from the expected recovery of the global economy, but ongoing domestic
economic restructuring will weigh on growth.

A tight labor market will put upward pressure on inflation. Economic and macroprudential policies should be calibrated and targeted to support the transition toward high-productivity growth.

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The expected global economic recovery and the consequences of ongoing domestic economic restructuring will shape economic trends in Singapore in the forecast period. With export of goods and services equivalent to twice of GDP, the economy will benefit from improved external demand. 

On the other hand, the tighter labor market will weigh on growth, with 1.8% unemployment and on a downward trend and vacancies far exceeding job seekers (Figure 3.29.6). On balance, GDP is forecast to grow by 3.9% in 2014, near the upper bound of the government’s forecast of 2%–4%, and by 4.1% in 2015.

The MAS is expected to closely monitor inflation dynamics, particularly in the property and transport markets, and to tweak the macroprudential measures already in place to ensure gradual price corrections in these markets. 

It will likely maintain its current policy for a gradually appreciating nominal eÁective exchange rate to helpcontain domestic costs, albeit tempered by how interest rates respond to US Federal Reserve tapering of quantitative easing.

However, the moderation of inflation experienced in 2013 may not be sustained as the pass-through of higher business costs, particularly wages, starts to creep into consumer prices. Reflecting these influences, overall inflation is expected to be 3.0% this year and to ease marginally to 2.9% in 2015.