Regional demand for financial intermediation, and wealth and asset management will support growth in financial services. Growing adoption of ICT and automated customer platforms by corporates are expected to boost demand for various ICT and business services, including cloud storage, data security, and IT consultancy. The domestic-oriented cluster—construction, retail and food, health and education services, making up 25% of GDP—has lagged somewhat but is expected to catch up in the quarters ahead. In 2017 and Q1 2018, this cluster contracted, as the drag from construction offset the modest growth in health, education and other essential services. The retail and food segments were largely flat. But part of the weakness should dissipate. Contracts awarded for public infrastructure projects and the pace of private residential en-bloc activities indicate a recovery in construction works in the quarters ahead. And firm labour market conditions and healthy consumer demand should support a recovery in retail & food services. While the central prognosis for the Singapore economy this year remains intact, spillovers from global trade conflicts bear close watching. These spillovers arise from Singapore’s role as a node in the regional electronics production value-chain, as well as a hub for air and sea transport and financial intermediation services. These are important intermediate inputs to the main trade flows between the US and its trading partners. Bilateral trade between the US and China indirectly contributes to about 1.1% of Singapore’s GDP. Flows between the US and EU contribute about 0.5% to Singapore’s GDP. NAFTA trade contributes 0.6%.

Core inflation is now around 1.5% at mid-year and we expect it to rise further, approaching 2% by year-end as the labour market continues to tighten. Monetary policy is predicated on baseline projections of growth and inflation. It does not aim to pre-empt tail risk scenarios. While we are closely monitoring the global risk factors mentioned earlier, our baseline forecast is for continued economic expansion and gradually rising inflation. The threat of a disruptive trade war has risen, but remains a tail risk for now. Our approach therefore has been to begin monetary policy normalisation but to do so in an incremental fashion in view of still-benign inflation and growing trade-related tail risks. In the short term, the policy band provides sufficient room for the $ nominal effective exchange rate to accommodate modest shocks to the Singapore economy. Future adjustments to monetary policy will depend on how the economy evolves and our updated assessments of inflation and growth prospects. PROPERTY MARKET AND MACROPRUDENTIAL POLICY The Singapore property market has seen a resurgence in prices and transactions over the past year. Prices of private housing have increased 9.1% since the trough in Q2 2017. This has mostly offset the cumulative price decline of 11.6% during the four-year period between mid2013 and mid-2017. The number of property transactions over the last 12 months was around 25% higher than during the previous 12 months. New housing loans over the last twelve months have risen by 34% year-on-year.