Boston, MA -- (SBWIRE) -- 12/26/2013 -- Singapore's economy is in the midst of a longer-term rebalancing as the government looks to reduce the country's reliance on foreign labour, and this will have substantial effects on inflation and economic growth over the medium-term.

Despite concern over Singapore's increasingly leveraged house -holds, in which total debt has soared to approximately 150% of income, we reiterate that the country's household balance sheets are still, on the whole, quite healthy. While there will undoubtedly be repercussions for both lower income households as well as those that have leveraged themselves aggressively (in order to take part in the country's housing boom) once global interest rates begin to normalise, we nevertheless stress that Singapore remains among the best-placed developed markets to weather such a phenomenon.

Major Forecast changes

The Singaporean economy has shown some nascent signs of life lately, with a strong services sector powering real GDP growth to a surprise 5.1% year-on-year (y-o-y) performance in Q313. As a result of the economy's better than expected performance, as well as material revisions to H113 figures, we have upgraded our full-year real GDP 2013 forecast to 3.6% from 3.1% previously. That said, we believe that a somewhat middling external demand picture will likely effect a modest slowdown from the current pace of growth in 2014, and therefore retain our 3.2% forecast for the year.

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Despite an underwhelming export performance, we have nevertheless seen fit to upgrade Singapore's 2013 current account forecast to a surplus equivalent to 17.2% of GDP versus 15.1% previously, but this is largely a result of the fact that imports have witnessed a slight deflationary trend relative to 2005 prices. While this will represent a decline from 18.6% in 2012, the surplus is still extremely large, providing strong fundamental support for the Singapore dollar.

Key risks to outlook

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