He blames energy prices for recent surge in inflation
(SINGAPORE) The recent surge in the pace of inflation here is mostly due to a sharp increase in energy prices and is unlikely to last as economic growth slows next year, a senior economist maintained yesterday.
Meanwhile, Asian economies still have a lot of tools at their disposal to keep their economies afloat even if growth in the US slows down more than expected, said Jan Lambregts, head of research in Asia for Rabobank International.
'In my mind there is no inflation problem' for Singapore, he said. Although inflation has been rising everywhere, 'I'm not pessimistic when it comes to this because the MAS (Monetary Authority of Singapore) already a couple of years ago adopted a tightening stance, so they were very early to the game when it came to fighting inflation,' he said.
'Energy prices are mainly to blame for the recent surge in inflation and I would expect some of that to taper off as growth moderates next year.'
Like several other economists who have in recent weeks published their forecasts for next year, he expects the US economy to avoid a recession, although he predicts it will grow at a much slower pace before recovering in the second half of 2008.
The main reason is that although housing prices there are likely to fall further, he believes that the impact on US consumer spending will not drag the overall economy down as much as some people expect.
'Research shows that consumers' response is asymmetrical. That is, when prices go up, they tend to consume quite a bit more, but when prices go down, they sit on their houses and they don't tend to lower their consumption in a comparable way.'
And while a US slowdown would typically hit small, open economies such as Hong Kong and Singapore hard, the vibrant domestic economy in both cases will cushion the blow, he said.
But the outlook for equities in most markets next year is 'mixed', he said. Although companies' profits and margins are likely to suffer from higher energy and raw material prices, their balance sheets are strong and their stock prices relative to expected profits and cash flows are still reasonable, he said.
Also, with the US Federal Reserve expected to lower interest rates further to revive the slowing US economy, interest rates in Singapore and Hong Kong - where central banks focus on managing their currency exchange rates rather than interest rates - are likely to follow 'and that's traditionally going to help equity markets'.
For Singapore's economy, he expects next year's growth to be 5.3 per cent - lower than an earlier Rabobank forecast and the 6.3 per cent median forecast by private sector economists in an MAS survey published last week, but 'still very decent'.
As a result, he expects the Straits Times Index of blue-chip stocks to reach 4,000 points at the end of next year, about 12-13 per cent above its current level.