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What does easing inflation mean for the Singaporean economy?

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Although moribund growth continues to underwhelm in the Singaporean economy ( EWS , quote ), the famed city-state may see a reprieve after recently released reports indicate that inflation continues to subside.

[caption align="alignright" caption="The Singapore skyline"] [/caption]

According to figures released this week pertaining to consumer prices from Singapore's Department of Statistics, inflation in Singapore dropped to 4%. This represents the lowest level of inflation in the Southeast Asian economy in 20 months.

This piece of data is a welcome relief for the Singaporean economy; there has been a dearth of good news of late. Economic growth has lagged, in particular juxtaposed with the high-flying economy of neighboring Malaysia ( EWM , quote ).

As a result of the global slowdown stemming from the European debt crisis, the Singaporean economy has stalled ; unlike its regional peers, Singapore has not benefited from a substantial increase in domestic spending to make up for the drop off in export demand from developed countries. GDP growth in the Singaporean economy has dipped to a mere 1% for FY 2012.

With European problems unlikely to resolve themselves in the near future thanks to continued bickering and contrasting worldviews, the Singaporean economy's important export sector will likely suffer as a result.

It's not all doom and gloom for Singapore. Because the Monetary Authority has had some success in stifling inflation, the central bank now has more options at its disposal to stimulate the economy. With concerns of heightened inflationary pressure having dissipated, the central bank can now feasibly loosen monetary policy in an attempt to stimulate the economy without worrying about catalyzing an inflationary cycle.

And if China ( FXI , quote ) is able to get its growth back on track later this year as predicted, the Singaporean economy will benefit appreciably thanks to the city-state's economy's substantial exposure to the Mainland.

If Singapore can re-engineer growth via loosening monetary policy and Chinese stimulus, as well as navigate the potential pitfalls of an extended housing market and increasing wealth disparity, investing in the Singaporean economy after a major pullback could be a profitable investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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