Monetary Authority of Singapore Annual Report 2010/2011
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Modest Growth in the G3 amidst Uncertainties

In the US, GDP advanced by 2.9% in 2010 as private consumption spending received a fillip from government transfers and tax cuts. Business fixed investment also rose, stimulated by policy incentives to increase hiring and capital spending, although residential investment has remained in the doldrums due to the weak housing market. More recently, the improvement in labour market conditions has become more discernable. With monthly employment increasing by an average of 166,000 in the first three months of 2011, nominal income growth has been quite robust. However, higher oil prices over the same period have crimped consumer expenditures, causing the US economy to expand by just 1.9% in Q1 2011 on a quarter-on-quarter seasonally adjusted annualised basis (q-o-q SAAR).

The sovereign debt crisis in the Eurozone has not receded. In the year to May 2011, three rescue packages jointly funded by the European Commission (EC) and the International Monetary Fund (IMF) were put together for Greece, Ireland and Portugal, accompanied by fiscal austerity measures to narrow their budget deficits. Despite an expansion in the effective financing capacity of the European Stability Mechanism to €500 billion, bond yields for the peripheral Eurozone countries remain on the rise and the threat of debt restructuring continues to hang over the Eurozone. Nonetheless, fiscal and banking problems have thus far been confined to the peripheral economies while those in the core have continued to benefit from a weaker euro which has led to stronger manufactured exports. Overall economic sentiment in the core countries of the region remains quite strong, and the Eurozone as a whole grew by 3.4% q-o-q SAAR in Q1 2011.

Japan's GDP expanded by 4% in 2010, its best performance since 1991. In the first half of the year the economy benefitted from strong demand in the Asian region, which boosted both exports and the yen. However, by the last quarter of 2010, the cumulative appreciation of the currency had blunted firms' competitiveness and precipitated a fall-off in goods and services exports. This decline in trade volumes was accentuated by the earthquake and tsunami in March 2011 as factories halted production and shipping was disrupted. As a result, GDP contracted by 3.5% q-o-q SAAR in Q1 2011.