S'pore will grow between 1.5% and 2.5% this year: MAS

Singapore's economic growth is likely come in below potential for the second consecutive year in 2013, said the Monetary Authority of Singapore (MAS). 

While some tail risks have receded, the central bank said in its half-yearly Macroeconomic Review Paper that uncertainties - such as the US fiscal cliff and the Eurozone debt crisis - remain. 

As a result, MAS sees growth in the advanced economies subdued "for a protracted period as painful deleveraging continues", even as a muted recovery is envisaged for Asia ex-Japan. 

But domestic-oriented sectors are set to remain resilient. This will provide support to Singapore's labour market, which should remain at close to full employment next year. 

For 2012, the central bank is sticking to its projection that Singapore will grow 1.5% to 2.5%. 

Singapore continues to face a short term cyclical downturn in the macro economy as domestic restructuring policies are implemented, said the MAS. 

In particular, trade-related activities, the IT cluster, and regionally exposed services have been most badly affected by the cyclical downturn. 

On a bright note, domestic-oriented activities have been a key pillar of support, contributing almost 70% of the growth in the first half of 2012 despite accounting for only a third of Singapore GDP. 

MAS also said that it is "important for medium term restructuring in the domestic economy to proceed even as Singapore faces short term cyclical headwinds". 

Domestic restructuring, which saw the tightening of foreign worker policies, boosted demand for resident workers in the low- and mid-skilled segments, especially in domestic industries like construction and services. 

This pushed up wages and added pressure to domestic costs, said MAS. It added that unit labour costs could rise by as much as 3% to 4% in 2013, following the 4% to 5% increase this year. 

Higher business costs could be absorbed by firms through lower profit margins in the short term, but there may be some pass through to consumers. 

MAS said that this sequential increase in core prices "while unlikely to reach the high in early 2012, is expected to pick up". 

Core inflation (which excludes accommodation and private road transport) will likely stay above its long term average, at 2.5% this year and 2% to 3% in 2013 while CPI-All Items inflation is expected to ease from slightly above 4.5% to the 3.5% to 4.5% range next year.