* Singapore's ongoing restructuring drive continues, with the ruling People's Action Party (PAP) pushing ahead with stricter foreign labour rules despite an increasingly tight labour market. While we believe that the tight labour market is acting as a headwind against economic growth, we do not foresee any easing from the government in the near future, particularly ahead of general elections set to be called before January 2017.
* Following a deceleration in real GDP growth to 2.8% in 2014, we foresee a modest recovery to 3.3% in 2015. However, we note that Singapore's rate of economic expansion will be significantly lower over the coming years than the rate seen over the previous decade as the country's demographic situation rapidly becomes a headwind to growth.
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Key Forecast Changes
* Following the Monetary Authority of Singapore (MAS)'s decision to reduce the Singapore dollar's appreciatory slope outside of its scheduled policy-making cycle, we believe that the unit will see continued depreciatory pressures through the remainder of the year. As such, we have downgraded our average forecast on the unit to SGD1.3600/USD for 2015, implying an end-year level of SGD1.3900/USD.
Key Risks To Outlook
* Expectations for the US Federal Reserve to hike interest rates later this year pose downside risks to Singapore's real estate market. Should the Singapore economy continue to underperform, the MAS may look to ease monetary policy once again in order to offset the effects of US tightening.
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