Oct 30, 2007
US slump, high oil prices key risks to growth: MAS
A SLOWDOWN in consumer spending in the United States and continuously high oil prices are the main risks facing the Singapore economy in 2008, the trade-dependent city-state's central bank said on Tuesday.
'Two key concerns continue to cloud the economic horizon and bear close monitoring. First, there is the possibility of a sharp downturn in US consumer spending arising from the ongoing correction in the housing market; and second, global oil prices could remain at an elevated level,' the Monetary Authority of Singapore said in its twice yearly Macroeconomic Review.
The report is available on the central bank's Web site. The United States is the second-biggest market for Singapore's non-oil exports after the European Union and is key for its tech-driven production.
The central bank also warned that after a pickup in inflation in the third quarter due to domestic and external factors, such as a sales tax hike on July 1 and higher food costs, underlying cost pressure would 'remain firm'.
The central bank maintained its forecast for headline CPI inflation to come in at 1.5-2 per cent this year and for inflation of 2-3 per cent in 2008.
However, the Monetary Authority said that in spite of a moderation in growth in the third quarter, underlying conditions for the US$129 billion (S$188.3 billion) economy remained supportive.
2008 forecastIt also reiterated its forecast for 2007 gross domestic product growth at the upper end of a 7-8 per cent band and also kept its 2008 forecast for an expansion of 4-6 per cent, Singapore's medium-term potential growth rate.
Asset market-related sectors, those associated with the property market, financial advisory and capital markets, are expected to show some improvement in the last three months of this year - barring a major fallout from the subprime mortgage crisis in the United States, it said.
Its 2008 outlook for industries linked to the booming property market, particularly the construction sector, is 'decidedly more sanguine'.
The central bank expects non-electronics manufacturing to again perform strongly next year, while the technology sector is expected to pick up in 2008 after signs of a recovery in the second half of 2007.
'This will be an important boost to the economy, given the relatively large share of the IT-related cluster and its extensive linkages with the rest of the economy.' The small country is heavily reliant on foreign demand for its high-end computer chips and pharmaceuticals.
Manufacturing industries are behind a quarter of the economic activity and electronics firms produce about one-third of the country's manufacturing output while pharmaceuticals output accounts for more than 22 per cent of the total. -- REUTERS
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