SINGAPORE'S ECONOMIC OUTLOOK

SINGAPORE'S ECONOMIC OUTLOOK

31.

Mr Steve Chia Kiah Hong asked the Minister for Trade and Industry (a) what is the economic outlook for Singapore for the second half of 2004 and for 2005; and (b) whether it will cause inflationary pressures and indirectly cause the cost of living to rise.

BG George Yong-Boon Yeo: The Singapore economy expanded strongly in the first half of the year, growing by 9.5% compared to the same period in 2003. The strong growth reflected rising external demand for both goods and services that are produced in Singapore , as well as our recovery from SARS which adversely affected the Singapore economy during the same period last year.

The global economy is expected to perform strongly this year. The latest IMF projection puts world economic growth this year at 4.6%. The advanced economies are expected to grow by 3.5% this year, the strongest since 2000. The ASEAN economy is also expected to turn in its best performance since the Asian crisis, growing by 5.4%. These projections imply that our key export markets will continue to register healthy economic growth in the second half of this year. Initial forecasts by the IMF also show healthy growth for these economies in 2005. Although high oil prices may dampen growth

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somewhat, a study by the International Energy Agency (IEA) has estimated that the impact of this is unlikely to pose a significant threat to global economic growth.

In view of the positive outlook for the global economy, demand for Singapore 's exports should continue to grow. Domestic demand is likely to be lifted by better employment prospects and a more positive outlook.

For this year, we should be able to meet the 5.5-7.5% forecast that MTI had announced in May. An updated forecast for this year and the preliminary forecast for GDP growth next year will be made in August, when MTI releases the detailed economic results for the second quarter of 2004.

The Monetary Authority of Singapore expects 2004 consumer price inflation to be between 1.5% and 2%, slightly higher than the 0.5% last year. Inflation this year will be lifted by higher import prices for oil and other commodities as well as stronger domestic demand. First, the higher oil prices will raise costs, including electricity tariff and petrol prices. Second, commodity prices have risen sharply this year, which raise input costs for certain industries. Third, as the economy picks up further and job market conditions improve, there would be stronger demand pressures this year.

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