Singapore economy supporting optimism

The official forecast for Singapore Gross Domestic Product (GDP) growth rate for this year is between 1.5% to 2.5%. This forecast came on the back of poor second quarter results for GDP. GDP contracted 0.7% in the second quarter ended June on a quarter-on-quarter seasonally-adjusted annualised basis.

Despite a poorer GDP number, the unemployment rate declined by 0.1 percentage point to 2.0%. Employment was still very strong in the second quarter.

Headline inflation number for July was 4% compared to corresponding period last year. For the whole year, the government predicted CPI (Consumer Price Index) All-Items to be between 4.0% to 4.5%.

Singapore is experiencing a twin-problem of slow growth and inflation. So long residents in Singapore have jobs, inflation will continue to hold up at an elevated level. So long as the interest rate continues to be low, residents would be spending on goods, services and assets such as properties and cars. This fuels asset price inflation and consumption goods inflation despite slow economic growth. Residents are more optimistic and this would translate to holding up stock market indices. Straits Times Index (STI) was near 52-week high as of last Friday and this appeared to hold up. One well-known analyst/commentator even ventured to predict that STI could reach 3,400 points before year’s end and 14 times forward Price/Earning ratio during a dinner talk I attended recently.

Do you share this optimism? I am still cautious but not panicky as felt in 2008/09 global financial crisis.

Copyright © 2012, 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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