The ruling PAP's landslide victory in 2015's elections, along with a comfortable by-election victory in May 2016, support our assertion that the party is experiencing a resurgence in popular support. 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. This entails a continued emphasis on restructuring the labour force away from its dependence on foreigners, as well as strategic investments into productivity enhancing measures.
Singapore is likely to experience modest real GDP growth through 2017, and we maintain our forecast for real GDP growth to come in at 1.7% in 2016 and 2.2% in 2017. Poor external demand and structural domestic trends will keep headline GDP growth subdued, although we believe that a marked deterioration in the labour market remains unlikely owing to the city-state's solid economic foundation.
Key Forecast Changes
We have revised our end-2016 forecast for the Singapore dollar upwards to SGD1.3700/USD (versus SGD1.4000/USD previously) as a result of a stronger than expected performance so far this year, as well as a lower likelihood of interest rate hikes from the US Federal Reserve in the near future. For 2017, we expect the currency to appreciate modestly to SGD1.3400/USD by year-end.
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.
|Nominal GDP, USDbn||292.9||278.2||292.0||308.2|
|Real GDP growth, % y-o-y||3.3||2.0||1.7||2.2|
|Consumer price inflation, % y-o-y, eop||-0.1||-0.6||0.0||2.0|
|Exchange rate SGD/USD, eop||1.33||1.42||1.37||1.34|
|Budget balance, % of GDP||1.3||-1.2||1.0||1.2|
|Current account balance, % of GDP||20.1||20.7||17.6||15.9|
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