Singapore c.bank sees modest GDP growth, demand-driven price pressures subdued

SINGAPORE (Reuters) - A slack labour market, falling business rents and weak economic sentiment in Singapore point to restrained inflationary pressures, the country's central bank said on Thursday as it forecast continued modest and uneven economic growth.

While inflation will rise in 2017 due to higher global oil prices and the impact from administrative steps such as a planned increase in water prices, the pass-through to consumer prices will be limited, the central bank said.

"Continued slack in the labour market, declining business rents, as well as weak economic sentiment, indicate that demand-driven inflationary pressures will be restrained," the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review.

The water price increase, set to rise by 30 percent in two phases with the first phase starting in July, is estimated to add around 0.1 percentage point to both headline and core inflation in 2017 through its direct, first-round impact, the MAS said.

The central bank, however, reiterated that its 2017 forecasts for core inflation and headline inflation were unchanged at 1-2 percent and 0.5-1.5 percent, respectively.

"Consumers in Singapore are generally cutting back on discretionary expenditure, possibly because of softer labour demand. Underlying demand-driven price pressures will, therefore, likely be subdued for some time, until the labour market strengthens," the MAS said.

The MAS kept its exchange-rate based monetary policy unchanged earlier this month, saying a "neutral" stance will be needed for an extended period as it looked to support an economy that contracted in the first quarter amid lingering risks to the global outlook. [nL3N1HL04H]

In its macroeconomic review on Thursday, the MAS said global economic activity had improved compared to October, adding that this will provide support to Singapore's trade-related sectors.

Soft labour market conditions will weigh on domestic-oriented segments, it added.

"The outlook for the Singapore economy has improved slightly, but GDP growth is expected to remain modest and uneven across different sectors," the central bank said, adding that 2017 GDP growth is likely to remain modest at 1-3 percent, reiterating the official forecast.

The economy grew 2 percent in 2016.

The MAS said its analysis suggests that nearly half the cumulative impact from its past policy easings since January 2015 will continue to filter through to the economy, and help ensure medium-term price stability.

The MAS eased monetary policy three times since January 2015, most recently in April 2016.

(Reporting by Masayuki Kitano; Editing by Simon Cameron-Moore)