SGD: MAS policy, 1Q16 GDP preview - ING

Tim Condon, Chief Economist at ING, considers the Singapore government’s 1-3% 2016 GDP growth forecast robust to the manufacturing recession and their yearend USDSGD forecast is 1.347.

Key Quotes

“The Monetary Authority of Singapore releases its semi-annual policy statement tomorrow at 8am local time. 12 of 18 analysts in the Bloomberg survey including ING expect the MAS to keep policy unchanged; no change in slope, bandwidth or band centre. A significant downshift in the inflation outlook prompted the January 2015 off-cycle easing via a reduction in the slope of the policy band. A “slightly weaker” growth outlook prompted a further slope reduction in October.

The MAS’s core inflation forecast is 0.5-1.5% (0.5% in January-February). Core inflation includes the food component, which for obvious reasons is highly correlated with Malaysia’s. The appreciation of the SGDMYR last year caused inflation in the two countries to diverge. The SGDMYR is depreciating this year and rising food component inflation in Malaysia is pushing up the Singapore counterpart, which we see driving core inflation from the lower bound of the MAS’s forecast range.

Also at 8am tomorrow, the government releases the advance estimate of 1Q16 GDP growth. The consensus forecast is 1.7% YoY (prior 1.8%). Our 2% forecast rests on the narrower contraction in industrial production (to -3.3% in 1Q16 from -6.2% 4Q15). The case for MAS easing is the manufacturing recession; if the consensus forecast materializes it would mark the sixth consecutive contraction in manufacturing GDP. However, we think the 2016 Budget was the policy response.

We consider the government’s 1-3% 2016 GDP growth forecast robust to the manufacturing recession. Based on our MAS policy forecast and ING’s USD/Majors forecast our yearend USDSGD forecast is 1.347 (latest 1.344, Bloomberg median 1.410, market forward 1.350).”