Morgan Stanley predicts stagflation will still haunt Singapore in 2013

Below-trend growth, above-trend inflation.

"We think that the “stagflation-type” scenario of below-trend growth and above-trend inflation will likely persist in Singapore in 2013," said Morgan Stanely in in its latest Asia Macro Debates report.

"A combination of DM secular deleveraging, greying demography and stricter immigration policies suggest that Singapore is unlikely to sustainably return to the 8-9% growth seen in the 2004-2007 period."

Morgan Stanley said policymakers are coping through a combination of S$NEER FX policy and other macroprudential measures to manage the inflation/ growth dilemma.

"For example, the 7th round of property cooling measures was announced recently to control property prices. Apart from these measures, we believe that structural strategies, such as reshaping the export machine and raising productivity, will also be needed in the medium term to cope with the new global/local landscape. Indeed, policymakers highlighted in a recent population white paper the need to raise productivity as growth in the labour force slows from a 3.3% CAGR in the past 30 years to 1% beyond 2020," the brokerage research firm added.