SINGAPORE, Jan 28 (Reuters) - Rich and orderly Singapore, a regional base for many multinationals and fund managers, is one of Asia's smoothest-running and least risky countries, and is rated triple-A by both Moody's and Standard & Poor's.
Economic growth is slowing, however, and discontent with the ruling party is on the rise amid high inflation and income inequality that is among the most extreme in the developed world.
The trade-driven economy grew by 1.2 percent in 2012, and Singapore avoided a recession in the fourth quarter only as a result of revisions to data for the first nine months of the year.
Another year of lacklustre economic growth and elevated inflation is likely in 2013, as exports remain weak and rising rents and car prices continue to push up the cost of living.
A January defeat for the ruling People's Action Party in a by-election does not limit its near-complete dominance of parliament, but shows support is waning, especially among younger voters, and suggests a serious shakeup of the makeup of the legislature is possible in 2016 general elections.
RATINGS (Unchanged unless stated):
Prime Minister Lee Hsien Loong has removed unpopular ministers, tightened immigration, increased the supply of government-built apartments and introduced more cooling measures to help slow the rise in property prices.
Still, many voters are unhappy with the PAP. With anger rising over soaring living costs, reliance on foreign workers and a widening income gap, the opposition Workers' Party took the PAP-held seat in the Punggol East ward by a convincing margin of nearly 11 percentage points in the January by-election.
Last June, the former head of Singapore's civil defence force was charged with accepting sex for favours in the most serious corruption case involving senior government officials in almost 20 years.
Those charges were swiftly followed by similar ones against the former head of the national anti-narcotics agency, which risk damaging Singapore's reputation as a graft-free haven of efficiency and clean government.
What to watch:
- The PAP, co-founded by Lee's father Lee Kuan Yew, has ruled Singapore since independence in 1965 and markets will be watching how the party competes for the support of voters in a more open political environment.
- Lee must address soaring property prices which have upset many young Singaporeans who feel they can no longer afford homes, unlike their parents' generation.
Foreigners account for nearly 40 percent of Singapore's 5.3 million people, a demographic which is not without problems.
The trend of foreign bankers and other professionals moving to Singapore is overall an inflationary one, and the outlook is worsening. Inflation for full-year 2012 was 4.6 percent, much higher than the 2.5 to 3.5 percent outlook the government gave at the start of the year.
In addition, some Singaporeans feel they are being cut of the job market by immigrants.
Finance Minister Tharman Shanmugaratnam has said Singapore must reduce its reliance on low-cost foreign labour, and the government has lowered the proportion of foreign workers companies can hire.
Still, Singapore wants commodity and energy firms to set up command centres for their Asian operations, alongside the banking, pharmaceuticals, electronics and aerospace firms that already now run regional bases out of the country.
What to watch:
- Property prices. Private residential prices have risen nearly 60 percent since hitting a trough in the second quarter of 2009 in the aftermath of the global financial crisis, and Singapore in January unveiled a suite of new measures to cool its housing market that included higher stamp duties on foreigners buying homes in Singapore.
- The government is trying to address growing public discontent about migrant workers, as more Singaporeans feel foreigners are taking jobs away from them. New measures have been introduced to screen for better qualified semi-skilled migrant workers and differentiate privileges between citizens and permanent residents. (Editing by Daniel Magnowski)