ECONOMIC DEVELOPMENTS
AND MONETARY POLICY
     
Content Page
 
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US: Vibrant Pace . Europe: Mixed
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Box 15 – Debunking the Deflation Myth in Singapore . International Financial Markets: Broad Recovery Amid Uncertainty
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Box 16 – Exchange Rate and Macroeconomic Volatility . Monetary Policy in an Increasingly Volatile Environment
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Recent Policy Research and Analysis Against the Backdrop of More Frequent Shocks . Box 17 – Creating an Electronics Leading Index
 
ASIA: BROAD-BASED GROWTH EXPECTED
 
With the end of SARS, the Asian economies began to strengthen in the third quarter of 2003, as tourist arrivals picked up and consumption returned to more normal levels. Barring any unforeseen circumstances, Asia’s growth, initially driven by exports, is likely to become more broad-based as income and employment growth pick up over time.

After being dormant for so long, the Japanese economy surprised with impressive annual growth of over 6% in the final quarter of last year and first quarter of this year. Growth was primarily driven by non-residential fixed investment spending on a rise in corporate profits. Exports also rose sharply despite the Yen’s strength, with China becoming an increasingly important catalyst.

China continued to spring ahead with GDP growth last year at 9.1%. Indeed, there are growing fears of overheating, driven in part by strong investment spending and credit demand. While significant, these pressures have been capped by timely measures to moderate demand growth.

For South-east Asia, the growth momentum will continue to be propelled by strong external demand and rising consumption. Although private investments are starting to pick up, the recovery is expected to be gradual due in part to lingering political and security concerns. All in, conditions have generally become more favourable for a period of sustained growth in the region.