The ruling PAP capitalised on positive sentiment amid Singapore's 50 th anniversary to put in an extremely strong performance in September's parliamentary elections, capturing 69.9% of the popular vote. However, we expect the party to broadly retain its policy strategy adopted in 2011, as its more consultative approach to governance appears to have paid significant dividends.
Singapore's ongoing restructuring drive continues, with the ruling People's Action Party (PAP) pushing ahead with stricter foreign labour rules despite an increasingly tight labour market. We believe that the tight labour market is acting as a significant headwind to real GDP growth, but do not see the ruling People's Action Party (PAP) easing measures in any significant way despite its landslide victory in September's parliamentary elections.
Key Forecast Changes
Following a deceleration in real GDP growth to 2.2% in 2015 , we believe that the ec onomy will cool further to a 1.9% rate of expansion in 2016 . Singapore's labour intensive manufacturing industry is losing competitiveness as a result of an extremely tight labour market, and along with a difficult external environment, this will cap growth over the near-term.
The Singapore dollar has witnessed significant selling pressure as a result of broad-based weakness among its peer currencies, and a larger-than-expected depreciation in the Chinese yuan would deepen the SGD's woes. This is a key downside risk to our end-year forecast of SGD1.5000/USD.
Despite Singapore's sound fundamentals, the confluence of weak external demand (led by a rapidly slowing Chinese economy) and domestic economic restructuring could give rise to a technical recession over the coming quarters.
|Real GDP growth, % y-o-y||2.9||2.2||1.9||2.2|
|Nominal GDP, USDbn||294.5||280.4||274.3||291.3|
|Consumer price inflation, % y-o-y, eop||-0.1||-0.5||1.0||2.5|
|Exchange rate SGD/USD, eop||1.32||1.42||1.48||1.45|
|Budget balance, % of GDP||1.3||-0.2||0.3||0.8|
|Current account balance, % of GDP||20.0||21.5||19.5||17.7|
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