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
 
US: Vibrant Pace
 
The US economy responded to the highly accommodative monetary and fiscal policies to surge ahead in the second half of 2003. Household spending grew at a brisk pace, and after a period of consolidation, private capital spending also picked up, fuelled by low interest rates, robust corporate profits and accelerated depreciation allowance. Leading indicators suggest that the growth momentum will remain strong in 2004. The Institute of Supply Management’s indices of manufacturing and non-manufacturing activities recorded high readings in the first five months of this year. Industrial ouput and capacity utilisation have picked up strongly amid robust retail sales. Indeed, consensus forecast for GDP growth this year has risen to 4.7%, the fastest in two decades.

Not surprisingly, the renewed strength in the US economy, rising employment and higher oil prices have reignited fears of rising inflation. Reflecting these fears, the yield on the benchmark 10-year Treasury note has backed up to about 4.7% in June, more than 100 basis point above its low in March. Rising optimism about the US economy has led to a brief strengthening of the US Dollar in the first few months of this year.
 
Enhancing Risk-focused Supervisory Approach
Box 1 – Fostering a Sound and Progressive Financial Services Sector
Enhancing MAS’ Supervisory Capabilities
Box 2 – Stress Testing of Life Insurers
Box 3 – Streamlining Inspection Function
Thematic Inspections to Improve Surveillance