CONTENTS
HOME
OUR WORK - Managing Risks, Sustaining Growth
A MORE CHALLENGING POLICY ENVIRONMENT
MONETARY POLICY - PROVIDING AN ANCHOR FOR PRICE STABILITY OVER THE MEDIUM-TERM
MANAGING THE CHALLENGES OF INCREASED GLOBAL FINANCIAL UNCERTAINTY
A SOUND AND PROGRESSIVE FINANCIAL CENTRE
CURRENCY
 
A MORE CHALLENGING POLICY ENVIRONMENT 12
 
Slowing in the G3 Economies 12
 
Asia Remains Resilient 13
 
Inflation Is On The Rise Globally 13
 
Singapore Is Not Immune To Global Growth and Inflation Risks 14
 

Slowing In The G3 Economies

Following several years of robust performance, economic growth is expected to weaken in the G3 economies in 2008, amidst falling asset prices and tighter credit conditions. In the US, the fall in house prices, rise in loan delinquencies and substantial subprime- and credit-related losses incurred by major financial institutions have heightened risk aversion in financial markets since August 2007. The resultant tightening of credit conditions has had some impact on the real economy. In the latest two quarters from Q4 2007 to Q1 2008, the US economy slowed significantly to an average sequential annualised rate of 0.8%, compared to an average of 4.4% in the preceding six months. Going forward, household spending will remain weak, and the unwinding of housing and credit market excesses will continue to restrain US economic growth. Latest consensus forecasts point to US GDP growth decelerating to 1.5% this year before recovering slightly to 1.7% in 2009.1

In the Eurozone, GDP growth moderated in 2007, after reaching a six year high the year before. Financial institutions and markets in a number of the Eurozone economies were impacted by the US subprime crisis, while softer foreign demand and a stronger euro contributed to a deceleration in export growth. Investment and consumption growth moderated as business and consumer sentiment eased.

GDP growth in Japan continued to pick up into the first quarter of this year. Personal consumption was the main driver of growth in Q1 2008, as household income continued to rise modestly. Exports, buoyed by demand outside of North America, have also supported growth, offsetting weakness in capital expenditure amidst declining profits. Looking ahead, however, the growth momentum of the Japanese economy is likely to moderate. Rising food and fuel prices will weigh on consumer spending, while weaker global growth will dampen exports and investment.

1 Consensus Forecasts Inc, June 2008.