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Singapore Faces Choppy Recovery: Central Bank

Roslan Rahman | AFP | Getty Images

Singapore's economy should see a modest rebound this year, although uncertainty regarding the outlook for global growth means the recovery could be choppy, the country's central bank said in a report published on Tuesday.

The Monetary Authority of Singapore (MAS) reiterated its outlook for the Singapore economy to grow 1-3 percent this year, supported by consumption and a pick-up in overseas demand for Singapore's exports.

In its semi-annual economic review, the central bank added that several risks remained for the economy, which contracted 1.4 percent in the first quarter from the final quarter of last year.

"Critically, the expected recovery is contingent on relatively sanguine conditions in the advanced economies," the MAS said. "This is not a foregone conclusion, as a severe negative shock in the developed countries would quickly reverberate through the global trade and financial channels."

Concerns about the outlook for the global economy have risen in recent weeks, with the U.S. economy growing by less than expected in the first quarter of the year and China's economic growth unexpectedly slowing.

The central bank said that a period of restructuring in Singapore's economy also meant that companies would face pressure on their profit margins from higher costs stemming from wages and rents, and this could present a headwind.

(Read More: Singapore Firms Hit by Foreign Labor Laws)

"Given these continuing external and domestic challenges, growth in the Singapore economy may not take off in the same way that has characterized past upturns," the MAS said.

But should the recovery in Singapore become more entrenched, the financial sector could be among the first to pick-up, the central bank said, adding that a rise in trading activity in the local stock market was a positive sign.

"Notably, trading activity on the domestic bourse was buoyant in the first quarter of this year, with average daily turnover volumes surging by 158 percent quarter on quarter, the highest since the second quarter of 2009," the MAS said.

"Further, IPO [initial public offering] volumes rose from $53 million in the fourth quarter of 2012 to $814 million in the first quarter of 2013 amid improved regional prospects," the central bank said, referring to new listings.

(Read More: Asia's IPO Market Just Got Its Buzz Back)

Singapore's stock market, up about 1.7 percent so far this year, is trading at its highest level since early 2008.

Earlier this month, the central bank maintained its tight monetary policy and lowered its inflation forecast for the year.

(Read More: Singapore Sticks to Monetary Policy Despite GDP Contraction)

In the semi-annual review, the MAS repeated it forecasts for inflation at between 3 percent and 4 percent, this year, with core inflation forecast between 1.5 percent and 2.5 percent. A surge in rents and car prices has kept Singapore's inflation rate high at around 4 percent for much of the past two years, even as the economy slowed.

"The overall CPI [Consumer Price Index] will be volatile mainly due to private road transport costs, which will continue to incorporate the effects of the recent motor vehicle policy measures," the MAS said.

The cost of buying a Certificate of Entitlement needed by Singapore drivers wishing to buy a car has fallen since the start of the year following restrictions of car loans.

(Read More: By Making Cars Harder to Own, Singapore Cools Inflation)

— By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @Dhara CNBC