Source : Straits Times - 25 Sep 2008
Some of those polled downgrade predictions; pharmaceutical sector remains the wild card
PRIVATE sector economists are turning bearish on Singapore’s economic outlook this year, amid the recent deluge of bad news from Wall Street and weaker- than-expected showings in exports and tourism.
Most of those polled by The Straits Times now believe growth will come in under 4 per cent, with some downgrading their predictions to as low as 2.8 per cent.
The official forecast is still a 4 to 5 per cent expansion, but Trade and Industry Minister Lim Hng Kiang has already said full-year growth may dip below that.
What the final number hinges on is the highly unpredictable pharmaceutical industry, which could still swing things either way in the last quarter, said economists. Always a wild card, this sector - which accounts for about 6 per cent of gross domestic product - has now become pivotal, especially since they cannot put a figure to it.
Mr Leong Wai Ho at Barclays, for instance, is banking on a ’significant pharma-led bounce’ in the fourth quarter to ring in full-year growth at just over 4 per cent, the highest prediction among those polled.
Barring this rebound, Citigroup economist Kit Wei Zheng has cut his growth forecast to 2.8 per cent this year and 2.5 per cent next year, as ‘ripples from the credit crunch hit home’ and trigger a longer and deeper downturn that had been expected earlier this year.
‘Beyond the third quarter, key leading indicators are all flashing red over the next six to 12 months,’ he said, adding that the effects of slowing external demand and the housing market correction will likely be intensified by the ongoing financial crisis.
The latest round of upheaval in the financial markets, triggered by Lehman Brothers’ collapse last week, has sharply increased the risks for a small and open economy like Singapore, added DBS Bank economist Irvin Seah.
‘We are rather exposed to external volatility and will certainly not be spared; in fact, we will probably be one of the worst hit in the region,’ he said.
Exports fell last month by the most in 20 months, plunging 13.8 per cent over the previous year in its fourth straight month of decline.
Tourist arrivals also dropped for the third consecutive month last month, hit by the global economic slowdown.
These figures have made economists increasingly convinced of the possibility of a technical recession in the third quarter, defined as two consecutive quarters of negative growth.
Tomorrow’s manufacturing output numbers for last month could firm up technical recession predictions and may trigger another flurry of growth forecast revisions, depending on whether they continue July’s dramatic 21.9 per cent contraction.
‘If the third quarter is another write- off and you have a technical recession in Europe, Japan, New Zealand, and even some of the Asian economies including Singapore, what we’re looking at is a little bit like a mini-Great Depression,’ said OCBC Bank’s head of treasury research and strategy Selena Ling.
But even if a technical recession does happen, it could just be a ‘numbers game’ rather than a major slowdown, said United Overseas Bank economist Jimmy Koh. In the first place, the second-quarter numbers were dragged down by pharmaceuticals, which ‘aggravated the situation’.
Economists also say there are still some bright spots in the services sector, which is more diversified and has new, independent growth engines such as the F1 race and the integrated resorts, which will create new jobs and new industries.
Other plus points for the economy include still-stable employment rates and a healthy construction sector, added Action Economics economist David Cohen.
Whether next year will be any cheerier is an issue over which economists are divided. Some believe the financial uncertainty will take its full toll on the economy next year, delaying a recovery previously expected in the second half.
CIMB-GK economist Song Seng Wun said his outlook is ‘diminishing by the day’. With a recession looming in the United States, the outlook is cloudy for the rest of the world, he said.
Others, like OCBC’s Ms Ling, are ‘not that bearish’. She predicts 4 to 5 per cent growth for now.
‘Of course a lot depends on how the US crisis pans out in the coming quarters, but assuming we see some light at the end of the tunnel by June next year, we can hope for some sort of recovery in the second half of the year.’
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