Four years on, the global financial crisis is still with us. The combination of weak banking systems and overstretched government balance sheets in several European economies has severely eroded investor confidence.

Unemployment is at exceptionally high levels in the US and Europe, and still worsening in the latter. Early improvement is unlikely in most of the advanced economies, and downside risks remain high. In Asia, notwithstanding the support from rising domestic demand, growth will be dampened by lacklustre export performances.

Against this external backdrop, Singapore should experience a modest pace of expansion in 2012, well below GDP growth of 4.9% in 2011. The labour market, however, remains at close to full employment levels.

Inflation in Singapore has picked up, alongside the firm economic growth of the past two years and the rise in global commodity prices. Core inflation has risen gradually, although headline CPI inflation has increased sharply. The CPI-All Items inflation rose from 2.8% in 2010 to 5.2% in 2011, before moderating slightly in the first five months of 2012. The main contributors have been increases in imputed rentals on owner-occupied accommodation, which do not involve actual expenditure, and the spike in prices of Certificate of Entitlements for cars.

MAS Core Inflation, which excludes the costs of accommodation and private road transport, was more moderate at 2.2% in 2011 and 3% in January-May 2012.1 Inflationary pressures are expected to ease gradually in H2 2012.