Manufacturing: More moderate growth
A potent combination of electronics and drugs sent factory production into overdrive this year.
But now that companies have topped up their inventories in line with the global economic recovery, demand for electronics may slow down in the months ahead, said UOB economists in a report this month.
'Looking at the electronics segment, output might start to wane with the semiconductor components moderating as a result of the inventory rebuilding cycle ebbing,' the report said.
'The segment might see some easing also after Christmas orders for electronic products have been filled.'
On a brighter note, the retail and electronics inventory levels in the US - a key source of demand - remain low, said Citigroup economist Kit Wei Zheng. This 'should limit the knock-on impact on Singapore's exports and manufacturing output'.
He added: 'Corporate IT demand should also be supported by upgrading demand and cash-rich corporate balance sheets.'
And the eventual performance of the manufacturing sector still hinges on the all-important but volatile pharmaceutical segment, which could swing the numbers either way.
According to 22 economists polled by the Monetary Authority of Singapore (MAS) in its latest survey of professional forecasters, the median expectation for manufacturing growth next year is 5.6 per cent, while non-oil domestic exports are predicted to grow 12 per cent.
Services: Good expansion prospects
While manufacturing always provides a more interesting if choppy growth picture, services will be the mainstay of expansion next year, economists believe.
'The growth baton is expected to pass from manufacturing to the services sector in the quarters ahead,' said DBS economist Irvin Seah. 'Services should pick up some of the slack for the manufacturing sector.'
Having opened with a splash this year, the integrated resorts (IRs) will continue to contribute to economic growth next year by bringing in more tourists, boosting the hotels, restaurants and retail sectors.
Firms in the financial and business services segments will also reap the rewards from capital inflows, which are expected to remain strong, said Mr Seah.
'We are looking at the overall services sector registering growth of nearly 6 per cent, compared to around only 3 per cent for manufacturing,' said UOB economists.
'The hotels and restaurants segment could grow by about 7 per cent, while wholesale and retail trade could be up 4.25 per cent. Financial services will also continue to be buoyant with the continuing activity in the capital, stock and property markets.'
Inflation: Prices up but expected to ease later
Rising prices have been singled out by both the Government and private sector economists as the main challenge facing the economy next year.
The MAS has said it expects inflation to reach 4 per cent early next year before easing to about 2 per cent in the second half. For the whole year, inflation is expected to come in at 2 to 3 per cent.
Economists tend to concur. Credit Suisse economist Kun-Lung Wu predicts that inflation will remain above 3 per cent in the first half but fall in the later months as the lower base effect tapers off.
'Our seasonally adjusted estimates indicate that inflation momentum has slowed in recent months,' he said.
'However, the recent rise in food and fuel prices, the hike in Electronic Road Pricing rates and a less favourable base effect suggest that inflation will rise further in the near term.'
As economic growth continues apace here, the supply of labour has been unable to keep up, added Citigroup's Mr Kit.
'Net job creation at around 25,000 in the past two quarters has fallen short of surveys indicating demand for up to 40,000 workers, while the number of vacancies now outnumbers job seekers for the first time in more than two years.'
This imbalance, on top of policy changes such as the expiry of the Jobs Credit Scheme in July this year, is likely to add to wage inflation this year, he said.
Monetary policy: MAS keeping close watch
As a result of inflationary pressures, most economists expect the MAS to retain its appreciation stance on the Singapore dollar next year - and possibly let the currency rise even more quickly.
The central bank already tightened its monetary policy twice this year as strong economic growth led to rising prices. But despite an expected decline in growth next year, the MAS 'cannot take its foot off the brake', said HSBC economist Leif Eskesen.
A stronger Singdollar helps prevent a wage-price spiral resulting from a tighter labour market, and mitigates imported inflation from higher commodity prices and abundant global liquidity, said Credit Suisse's Mr Wu.
'We think the current monetary policy stance is enough to keep inflation within the MAS forecast path of 2 per cent to 3 per cent in 2011. However, the MAS might still tighten the policy further in April if growth or commodity prices surprise on the upside.'
Apart from higher consumer prices, asset price inflation is also worrying the authorities, which implemented two rounds of measures to cool the real estate sector this year. While these have helped take some of the heat off, 'more measures may be needed to ward off the threat of a bubble', said Mr Eskesen.
Construction: Line-up of transport projects
Growth in construction, the third and smallest pillar of Singapore's economy, has tapered off this year as mega projects such as the IRs reach completion.
In the year ahead, the sector is likely to feel the pain from recent government measures to cool the property market, said DBS' Mr Seah. But he added: 'A healthy pipeline of public transportation projects will support growth in this sector.'
Economists in the MAS survey projected 5 per cent growth in the construction sector next year.
The Singapore dollar: Likely to remain strong
The Singapore dollar hit one all-time high after another against the US dollar this year, bringing cheer to shoppers and woe to exporters.
And its rise is far from over, as the MAS is likely to keep letting the currency appreciate to counter inflation next year.
'With the MAS having set the monetary policy of a gradual appreciation of the Singdollar, this should signal the strengthening of the Singdollar,' said UOB economists.
But they predict that the currency will rise at a slower pace, reaching $1.28 against the greenback in the first quarter of next year but finishing the year at $1.25 against the US dollar.
This is slightly higher than the projection from the MAS survey of professional forecasters, which puts the Singdollar at $1.24 to the US dollar by the end of next year.