SINGAPORE – Singapore’s trade-reliant economy contracted 1.9 percent in the first quarter from the previous three months on an annualised basis, data from the Ministry of Trade and Industry (MTI) showed, matching the median forecast in a Reuters survey.
The slump was seen as payback for the outsized 12.3 percent jump in the fourth quarter, with many analysts seeing growth tracking in line with government forecasts for 2017.
Year-on-year, the economy grew 2.5 per cent in the first quarter, easing from the 2.9 per cent growth in the previous quarter, according to MTI.
The central bank acknowledged a “slightly” improved outlook for the global economy but said downside risks remain, alongside”significant policy uncertainty.”
Nomura economist Brian Tan said the Monetary Authority of Singapore (MAS) sounded “cautious” about the economic outlook, which is likely to dampen speculation that the central bank could tighten policy at the next policy review in October. “It’s a bit too soon to tighten policy,” Tan said.
As the global economy perked up from late last year, Singapore’s exports and manufacturing have bounced from depressed levels, helping lift inflation in line with official forecasts.
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Meanwhile, the central bank held policy steady as expected on Thursday, saying a “neutral” stance will be needed for an extended period as data showed the city state’s economy contracted in the first quarter.
Analysts said the MAS’ reiteration of the forward guidance from its last review and warning of “significant policy uncertainty” dampened any expectations of tightening in October.
The Singapore dollar rose slightly after the MAS said it will maintain its rate of appreciation of the Singapore dollar at zero percent, with the width of the policy band and the level at which it is centred unchanged. “A neutral policy stance is appropriate for an extended period and should ensure medium-term price stability,” the MAS said in its semiannual monetary policy statement.
18 of 19 analysts in a Reuters survey predicted the MAS would keep monetary policy unchanged – one analyst expected an easing – after having eased policy three times since January 2015, most recently in April 2016.
The MAS manages monetary policy by changes to the exchange rate, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners because trade flows dwarf the city state’s economy.
MAS said core inflation was projected to average 1-2 percent, compared to 0.9 percent in 2016. All-items inflation is expected to rise to 0.5-1.5 percent from minus 0.5 percent last year.
