Singapore may grapple with elevated inflationary pressures for a third year in 2013, reducing scope for the central bank to provide stimulus to an economy that probably entered a technical recession this quarter.
Gross domestic product contracted in the final three months of 2012 from the previous quarter, according to five of 10 economists in a Bloomberg News survey, where the median was for an annualized expansion of 0.3%. A decline would lead to the country’s first recession since 2009. The report will be released at 8 a.m. on Jan. 2.
Elevated housing, transportation and business costs have resulted in one of the fastest inflation rates in the developed world even as growth slows. The Monetary Authority of Singapore tightened policy this year by allowing faster currency gains in an export-dependent economy at risk from an uneven U.S. recovery and Europe’s protracted sovereign debt crisis.
“MAS faces twin challenges of stubborn inflation and sluggish growth,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. The central bank may “continue to maintain a gradual appreciation stance, even in an environment of below-trend growth,” he said.
Price gains have averaged 4.9% since the start of 2011, more than double the 1.9% average in the past two decades. The central bank forecasts an inflation rate higher than 4.5% this year and in a 3.5%-to-4.5% range in 2013.
The third-best performing Asian currency this year has failed to stem inflation in a nation that uses its exchange rate rather than borrowing costs to manage prices. Instead, the Singapore dollar’s 6% rise in 2012 may be weighing on the manufacturing industry, said Kit Wei Zheng, an economist at Citigroup Inc., hurting an economy where total exports are equivalent to more than one-and-a-half times its GDP.
Non-oil domestic exports will probably rise 2% to 3% in 2012, lower than a previous forecast of 4% to 5%, the government said last month. It predicts overseas shipments will climb 2% to 4% in 2013.
Prime Minister Lee Hsien Loong may give some economic estimates in his annual New Year message later today. The government expects GDP to expand about 1.5% in 2012 and growth of 1% to 3% in 2013.
Ranked by the World Bank as the easiest place to do business, Lee has cut taxes in recent years to spur investment. Rolls-Royce Holdings Plc, Europe’s largest maker of commercial aircraft and ship engines, opened a $700 million manufacturing and assembly plant in February.