Singapore’s solid Q4 growth bolsters bets on central bank tightening

: Singapore’s economic growth slowed in the fourth quarter as factories lost steam, but a services sector recovery has bolstered expectations the could tighten monetary policy as early as April, sending the local currency higher.

The economy expanded 3.1% in the October-December quarter from a year earlier, advance estimates from the Ministry of Trade and Industry showed today, slowing from the third quarter’s upwardly revised 5.4% growth, which was the fastest on-year growth in nearly four years.

On an annualised and seasonally-adjusted basis, gross domestic product expanded 2.8%, well-down from revised growth of 9.4% in the third quarter.

While the quarter-on-quarter growth figure was slightly below the median expectation in a Reuters poll of economists, growth seen in the services sector has fanned market expectations the Monetary Authority of Singapore (MAS) could tighten policy in 2018.

“The details looked a bit better, such as the upward revisions to Q3,” said Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore.

“There is a sense of a little bit of a broadening recovery and I think markets are growing more confident of April rather than October MAS move,” Varathan said.

The firmer views on central bank policy helped send the Singapore dollar up 0.5% to S$1.33 (RM4.03) per at one point, its strongest level in 2 ½ years. The local currency, on track for its biggest one-day gain since Nov 22, was also supported by a broadly weaker greenback.

For the whole of 2017, the city-state’s trade-reliant economy grew 3.5%, at the top end of the government’s official 3.0 to 3.5% forecast range. This was the fastest pace in three years and helped by improved global demand, particularly for electronics products and components such as semiconductors.

The government has previously said it expects growth of 1.5 to 3.5% in 2018.

At its last semi-annual policy meeting in October, the central bank held monetary policy steady but changed a reference to maintaining current settings for an extended period, a shift that analysts said created room for a tightening this year.

The latest growth data has done little to dissuade such expectations for monetary tightening.

“We still hold the view that the MAS is likely to tighten this year, but maybe October rather than April,” said Selena Ling, head of treasury research and strategy for OCBC Bank.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed policy band.

One focus is on whether the government will announce an increase to the 7% Goods and Services Tax (GST) rate when it unveils its 2018 budget in February, Ling said, adding that the MAS may want to take some time to see how the market digests the budget and how data pans out.

The pick-up in economic growth has helped bolster activity in the city-state’s property market, with private housing prices rising 1% in 2017 for the first annual gain since 2013, according to separate data released today. – Reuters

Source: The Sun Daily

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