Singapore seen to slide from first to sixth fast-growing economy in 2011

OCBC Bank said even the MAS is already comfortable with the probability of a 4-6% growth next year as no change to monetary policy outlook is likely to be made in the interim.

In a statement, the bank said it is keeping its 4-5% forecast for 2011 even as it has refined its 2010 GDP growth forecast to 14.6% yoy (previously 14.0%) as the construction industry was singled out as likely to shrink next year.

It noted, however, that the risk of a technical recession in Q4 2010 has been reduced due to MTI’s anticipation of a “modest sequential upturn” in Q4 2010.

The biomedical manufacturing cluster is expected to recover with higher production of active pharmaceutical ingredients and restocking activities of several companies, while the financial services sector should also continue to recovery, supported by resilience in the core banking and insurance industries.

Recent US advance retail sales data also suggest that a brighter holiday season sales, and the US National Retail Federation has forecast Nov-Dec holiday sales will rise by 2.3% yoy, the most since 2006.

Nevertheless, Singapore’s Q4 2010 GDP growth may escape a technical recession, but maybe only by a whisker’s length by our estimates,” OCBC said.

The bank said monetary policy focus for next year is likely to be centred on upward inflation risks as inflation is tipped at 2-3% in 2011, versus 2.5-3% this year.

It also expects the strong SGD NEER to mitigate some imported price inflationary pressure as it has been currently trading +2.7% on the stronger side of parity band.

The bank, said, however, that it would be watchful if the CPI overshoots the 4% handle in the coming months and persists there into the first half of 2011.