A year to forget

2010 saw a spectacular Gross Domestic Product (GDP) of 14.5 per cent growth rate. With only one more month to go before we see the end of 2011, the GDP forecast is for 5 per cent growth rate this year. This does not seen so bad, 5 per cent is still good, but I cannot say the same about the inflation rate for Singapore. The Consumer Price Index (CPI) stayed stubbornly above 5 per cent for the past four months and the Monetary Authority of Singapore (MAS) said that inflation for the whole of this year would be about 5 per cent.

With inflation rate of 5 per cent, the purchasing power of your dollar will be eroded. Your same dollar now pays for 5 per cent less of the goods and services than one year ago. In other words, you need more dollars ($1.05) to pay for the same goods and services bought one year ago.

If you have a stable job with wages that increased at least 5 per cent for this year, your standard of living need not decline because wage increment will cover the inflation rate. But not all workers are that fortunate. Some may take home less salary for whatever reasons, such as job redundancy, sickness.

For retirees, it is even a bigger blow. There is no salary to talk about. They relied on savings and investments to live each day. How much can their savings earn them? 0.05 per cent interest if their savings are placed with POSB. Hardly this interest can cover the 5 per cent inflation rate! What about investments placed with some investment-grade assets? One can be lucky if they can get 2.15 per cent returns on some corporate bonds such as SIA Bonds. Still not sufficient!

I am hard pressed to find an asset class that can offer above 5 per cent constant income and are principal-protected. Most investment classes lost money due to the current economic climate based on my experience. For example, Singapore equity lost 17 per cent since the start of this year and this does not offer any comfort.

Next year will be worse. The GDP growth rate is forecast to be between 1.0 to 3.0 per cent. This will be low. Inflation was forecast to be between 2.5 to 3.5 per cent, but inflation no doubt, that can erode your purchasing power.

I may have sounded gloomy. But this has been the constant message put forth from the leaders of this country. Hold on tight as we manoeuvre this minefield of slow global growth for 2012. Careful spending and investment is called for. It is not time for reckless investment that can set one back seriously.

Copyright © 2011, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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