Singapore's soft labour market curbs inflation; external outlook brightens: MAS

A SOFT labour market, downbeat consumer sentiment and uneven domestic growth are curbing price increases in Singapore, said its central bank, adding that unemployment rates may rise slightly this year.

This comes even as the city-state's external prospects have brightened, said the Monetary Authority of Singapore (MAS) in the April edition of its biannual macroeconomic review.

The review, released on Thursday, reiterated a growth forecast of one to 3 per cent for Singapore this year. Core inflation is expected to average around one to 2 per cent. The review comes two weeks after MAS said that it would keep its monetary policy stance as it is.

"The Singapore economy will continue to expand at a modest pace in 2017 ... However, demand-driven inflationary pressures will likely be restrained," it said then.

On Thursday, MAS said that Singapore's employment outlook for this year will be similar to last year's as the labour market softens.

"Amid soft labour demand, the overall and resident unemployment rates may increase slightly this year."

The soft labour market suppresses wage pressures and dampens consumer sentiment. This means that firms are unlikely to pass on rising business costs to consumers. Sectors that rely on consumer spending, such as retail and food services, are also feeling the heat.

External-facing ones, on the other hand, did well, said MAS. It said that domestic demand was strengthening in the US, the eurozone, and Japan. For China, policy stimulus and state intervention helped stabilise its growth.

The pick-up in major global economies stokes external demand for regional ones. But MAS said that this upswing should not be taken for granted.

On the advanced economies, it said: "Households and firms' more sanguine expectations can only be maintained if some of the prevailing uncertainties and risk factors dissipate ... the sustainability of the global expansion is by no means assured."