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Singapore to see slow growth, high inflation in 2013 - c.bank

SINGAPORE, Oct 30 (Reuters) - Singapore is likely to see another year of lacklustre economic growth and elevated inflation in 2013 as exports remain weak and rising rents and car prices continue to push up the cost of living, its central bank said on Tuesday.

But the job market will remain tight and ``resident wage growth could rise from 2-3 percent in 2012 to above 3 percent in 2013 even if overall economic growth remains sluggish,'' the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review.

Singapore's gross domestic product growth ``is likely to be positive though below-trend next year'', while ``CPI-All items inflation could rise to 4.5 percent temporarily in Q4 2012 and Q1 2013 from 4.2 percent in Q3'' before moderating to around 3.5 percent in the fourth quarter of next year, MAS said.

Wealthy Singapore, a major Asian business and financial centre, has been making it harder for firms to recruit low-cost workers from abroad following a backlash from citizens concerned about overcrowding on trains and buses as well as increased competition for jobs, schools and housing.

During parliamentary elections last year, Prime Minister Lee Hsien Loong's long-ruling People's Action Party (PAP) saw its share of the popular vote fall to a record low of 60 percent and two ministers were voted out of office.

Singapore authorities expect GDP growth this year to come in between 1.5 and 2.5 percent, down from 4.9 percent last year and below what they believe is the economy's trend growth of 3-5 percent.

Inflation, meanwhile, is likely to slightly exceed the government's most recent forecast of 4.0 to 4.5 percent for 2012, which is already much higher than the 2.5 to 3.5 percent outlook it gave at the start of the year.

Measures to control the number of cars in the city-state via certificates of entitlement (COEs) that motorists need before buying a new vehicle have been one of the main contributors to inflation.

Bank of America Merrill Lynch, in a report last week, estimated the government's shift away from its once liberal foreign labour policy will shave about 1.3 percentage points off 2012 GDP growth, which averaged 1.7 percent year-on-year in the first nine months.

``Stricter immigration and foreign worker policies is intended to improve the quality of life for citizens, with less congestion and competition for housing, and a more protected job market. But there are also costs, with lower potential growth, a less dynamic job market, and higher wage-cost inflation,'' said Merrill's Southeast Asia economist Chua Hak Bin.

DOMESTIC BOOST

MAS said that while external-oriented sectors such as manufacturing have suffered from the weakness in Europe and the slowdown in China, domestic sectors remained buoyant due to the large number of ongoing projects.

``The more optimistic outlook for domestic-oriented activities is partly a result of supply-side expansions that are needed to accommodate a larger population base in Singapore,'' the central bank said.

Projects that Singapore has embarked on include an expanded public housing programme to meet the surge in demand, construction of a new airport terminal, new extensions to the subway network as well as new community hospitals and nursing homes to cater to a rapidly ageing population.

Earlier on Tuesday, the Straits Times newspaper said a spike in construction costs had contributed to a more than 70 percent rise in the estimated cost of building the new Downtown subway line to S$20.7 billion ($16.95 billion) from an original estimate of S$12 billion.

MAS described the slowdown that Singapore is currently facing as a ``slow drag'', which differed from previous recessions when the economy experienced a ``sharp and decisive'' downturn.

``In previous recessions, the external-oriented industries tended to collapse following a sharp pullback in external demand. This time round, these industries saw only a gradual slowing. As a result, the negative spillovers on the cyclically sensitive domestic activities have been limited.''

Singapore's population has jumped over the past decade as a surge in the number of foreigners more than compensated for a declining birth rate that is one of the lowest in the world.

The island, which is now more densely populated than Hong Kong, had a population of 5.3 million last year compared with 4.0 million in 2000. Citizens now account for around 62 percent of the population, down from around three-quarters at the turn of the century.

``Since the middle of the last decade, Singapore's resident population has increased by about 3.1 percent annually, faster than the post-independence average growth rate of 2.2 percent,'' MAS said. ($1 = 1.2210 Singapore dollars)

(Editing by Kim Coghill)