Monetary Authority of Singapore Annual Report 2011/2012
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Growth in the G3 Fell Sharply as Domestic Demand Retreated

The US economy grew at a sub-par pace of 1.7% in 2011 as private consumption growth slipped significantly in the first half of the year on the back of higher energy prices and a weaker labour market. However, this was partly offset by an increase in business investment, particularly in equipment and software spending, which was in turn stimulated by tax incentives. Uncertainty over the extension of the fiscal debt ceiling and continued government support also unnerved households and businesses, though confidence quickly returned when a compromise deal, which kept key benefits and spending intact, was reached. This, together with the uptick in the labour market that continued into early 2012, supported domestic demand and enabled the US economy to grow by 1.9% q-o-q SAAR in Q1 2012.

In the Euro zone, the flare-up in the sovereign debt crisis in mid-2011 and ongoing fiscal austerity constrained economic activity in the peripheral economies. Even the core Euro zone economies suffered from a rapid deterioration of sentiment, leading to weak domestic demand and a rise in unemployment rates. These negative impulses precipitated a region-wide economic contraction in the last quarter of 2011 as bond yields rose and funding stresses intensified. A debt restructuring package for Greece was implemented in February 2012 and liquidity injections by the European Central Bank (ECB) in the form of longer-term refinancing operations (LTROs) brought back some stability to the region. As a result, the Euro zone narrowly avoided a recession, with growth flat in Q1 2012.

Following a stellar performance in 2010, Japan’s GDP fell by 0.7% in 2011 as the Tohoku earthquake in March and the Thai floods later in the year led to sharp cutbacks in production and exports. Initially, the sluggish global economy and a strong yen aggravated the negative effects from the supply shocks while uneven implementation of reconstruction projects offered little support to aggregate demand. More recently, a pickup in private demand and a surge in reconstruction activity has been supportive of growth, with GDP increasing at a pace of 4.7% q-o-q SAAR in Q1 2012.