SINGAPORE: Mr Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), said on Wednesday that unless the global economy suffers a setback, Singapore’s economic growth might exceed the “upper end” of the official projection range this year (Jun 30). Mr Menon said the broader economy could improve in the second half of the year, citing strengthening global demand and progress in Singapore’s immunization program, during a virtual news conference for the release of MAS’ annual report.
“This year, the virus and the vaccination are competing. We can return to normalcy faster if we can get people vaccinated “Mr Menon stated. “However, if the virus continues to mutate at a quicker rate, resulting in new strains that are more virulent and likely vaccine-resistant, then economic conditions would deteriorate,” he warned. READ: The COVID-19 task team has released a wide strategy for a new normal, including home recuperation and travel. SOME INDUSTRIES GET A BACKUP
Last month, Singapore’s official prediction was kept at 4 to 6% due to “heightened uncertainty” caused by tightening measures in response to an increase in local COVID-19 infections. In August, the forecast will be updated. Mr Menon, in his annual review of the Singapore economy, stated that the country’s economy has recouped the aggregate output loss experienced during the COVID-19 pandemic in the first quarter of 2021. “The current tightening of domestic limitations and border controls will result in a near-term setback for segments that account for around 8% of the GDP,” he said. Retail, food and beverage, and land transportation services are among them. According to him, travel-related industries such as air transportation, lodging, entertainment, and recreation are expected to experience significant delays in recovery.
He added that labor shortages might stymie the building and marine and offshore engineering industries.
Despite the setback to some companies, the current limits will have a “much less severe” economic impact than last year’s “circuit breaker,” he said.
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“WE ARE CAPABLE OF WITHSTANDING SMALL OUTBREAKS”
In response to a reporter’s query about the influence of vaccinations on Singapore’s growth, Mr Menon stated that after 70 to 80 percent of the population is vaccinated, Singapore will have “a lot more space to reopen the economy.”
“We can withstand small outbreaks here and there and continue our lives and our businesses as before… and that’s the situation that we are hoping to get to by the end of this year,” Mr Menon said, referring to authorities’ earlier announcements that Singapore may have to live a new normal where COVID-19 is endemic.
GLOBAL ECONOMYHis view of the global economy was good, although he did warn of “significant negative risks.”
According to him, the world economy has likely already recovered its pre-pandemic output level and is predicted to grow by 5.8% in 2021, following a 3% drop last year.
“In fact, the global economy could surprise to the upside,” he predicted.
The greatest downside risk is the advent of more infectious or fatal viral mutations, as well as the possibility of a rapid rise in US inflation.
According to Mr Menon, the quick speed of economic recovery in the United States may result in a “pronounced and permanent rise in prices.”
If there are signs that inflation is becoming too strong, interest rates may have to rise.
He warned that “premature tightening of financial conditions” could lead to heightened financial market instability.
“To summarize, while the world economy is significantly better off than it was last year, uncertainty remains high,” he said.
READ: The US economy grew by 6.4 percent in the first quarter, and this is only the beginning. Core inflation in Singapore is expected to continue its slow recovery, with the prediction for 2021 remaining constant at 0% to 1%. Due to a substantial increase in COE premiums in the second quarter, MAS increased its CPI-All Items inflation prediction to 1 to 2% from 0.5 to 1.5 percent. While core inflation is rising from a low base, Mr Menon stated that the MAS is keeping a close eye on global and domestic pricing movements. “Any signals of inflation acceleration or persistence will be monitored by the MAS,” he said. MARKET FOR “RESILIENT” PROPERTY He also warned that despite the pandemic and recession, the property market has remained “remarkably robust.” The residential property price index increased by 1.6 percent last year, despite nominal GDP contracting by 8.2 percent. According to MAS, the indicator was 5.6 percent higher than pre-pandemic levels in the first quarter of 2021, despite GDP being around 4% lower than pre-COVID-19 levels. “The MAS, in collaboration with the MND (Ministry of National Development) and the URA (Urban Redevelopment Authority), is extremely concerned about the prospect of a protracted increase in prices relative to income trends,” Mr Menon said. “A long-term disparity between prices and earnings is unsustainable in terms of market stability and undesirable in terms of housing affordability.” When questioned afterwards if any measures to cool the market were being considered, Mr Menon stated that the market was not now cooling “overheated”: “We’ll never know if we’ll implement measures in advance – it defeats the purpose of implementing measures.” So stay attentive and keep an eye on the market, and we hope it will remain stable.” READ: MAS’s net profit plummets by 51% to S$5.2 billion PERFORMANCE OF THE FINANCIAL SECTOR Despite the fact that the entire economy shrank last year, the financial services sector increased by 5.1%. The sector is expected to have grown by roughly 6% in the first half of 2021. According to Mr Menon, growth has been broad-based across the financial services sector, and the fintech sector has also performed well. Strong inflows into traditional and alternative investment strategies, as well as valuation increases across key asset markets, drove assets under management in Singapore to S$4.7 trillion at the end of 2020, up 17% year on year. According to Mr Menon, the financial services sector has outperformed the Industry Transformation Map’s (ITM) value-added and employment projections for 2016 to 2020. Value-added growth averaged 5.4 percent per year throughout the five-year period, above the ITM objective of 4.3 percent. The sector added 4,700 net jobs per year on average, above the aim of 4,000. According to him, MAS has begun examining ITM strategy and targets for the next five years. “Technology will transform financial services far more fundamentally in the next ten years than it did in the last five,” Mr Menon said. “As the world strives toward a low-carbon future, sustainability will become an increasingly fundamental emphasis for financial services.”
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