Economists lower growth forecast

Source : Straits Times - 4 Sep 2008

MAS survey reveals a more bearish outlook, with a 4.2% expansion

Private sector economists are becoming more bearish over Singapore’s growth prospects for this year, as the global economic slowdown tightens its grip.

On average, economists now expect 4.2 per cent expansion this year, according to the latest Monetary Authority of Singapore survey released yesterday.

This is still regarded by economists as solid growth, given grim global conditions, but it is well down from the 5.5 per cent they had predicted in the previous quarterly poll in June.

Next year’s growth is expected to be 4.6 per cent, the survey found. The economy grew a zippy 7.5 per cent last year.

The revision comes amid growing signs of an economic slowdown here, including a retreat in exports in recent months, and the worst manufacturing slump since late 2001, recorded in July.

Last month, the Government lowered its 2008 growth target from a range of 4-6 per cent to 4-5 per cent, citing weakness in the global economy.

The MAS said statistical analysis of the Aug 11 survey sent to 24 private sector economists, of whom 20 responded, suggested growth was likely to come in this year at between 4 and 4.9 per cent.

Economists foresee more gloom ahead, with several likely to cut their growth forecasts in the coming weeks.

CIMB-GK economist Song Seng Wun told The Straits Times: ‘The 4.2 per cent figure is still surprisingly high. The survey results are a little too optimistic, given the poor July factory output figures and downgrading of forecasts by most OECD (major industrialised) countries.’

Mr Song, who is tipping 3.5 per cent growth, expects the forecast to dive by about one percentage point in the year-end MAS survey as optimism dims.

Economists have also cut their forecast for third-quarter growth from 3.7 per cent to 2.7 per cent. Inflation is tipped to hit 6.4 per cent this year, up from the 6 per cent forecast earlier. Unemployment is expected to rise to 2.5 per cent, higher than the 2.2 per cent in the June poll.

Standard Chartered Bank economist Alvin Liew, who expects 3.5 per cent growth this year, believes manufacturing weakness will lead the economy into a technical recession - two consecutive quarters of negative growth.

He said: ‘The high bases built up in 2007 for many of the star industries like the financial sector, marine engineering and construction are unlikely to offer sufficient offset to the manufacturing sector’s slowing momentum.’

He added that the potential benefits of the F1 Grand Prix race this month is untested and ‘unlikely to give that much boost to retail sales’. The construction sector’s boom is ‘too small to make a big difference’ as it makes up about 4 per cent of economic output.

But all is not gloom and doom. HSBC economist Robert Prior-Wandesforde said: ‘The fundamentals for domestic growth remain extremely good - low interest rates, a very accommodative fiscal policy, double-digit job growth and strong gains in HDB flat prices.’

He expects 5.8 per cent growth, but says he will cut this in coming weeks.

One bright spot was a 15 per cent surge in overall spending at home year-on-year in the second quarter, thanks mainly to a 25 per cent rise in investment, he said.