Slower growth, but no need to panic

Experts say recession unlikely; certain sectors will prop up economy

ALTHOUGH the Singapore economy turned out a weaker-than- expected performance in the last three months of 2007, economists are not rushing to revise their GDP forecasts for this year even though they anticipate slower growth.

The gross domestic product (GDP) for the fourth quarter slowed to 6 per cent from 9 per cent a quarter earlier, according to the Ministry of Trade and Industry (MTI) advance estimates released yesterday.

On a quarter-on-quarter seasonally-adjusted annualised basis, real GDP fell for the first time since 2003. It “fell by 3.2 per cent, compared to a 4.4-per-cent gain a quarter earlier, reflecting a slowdown in the manufacturing sector”, said the MTI.

A sharp drop in the biomedical manufacturing cluster led the overall manufacturing sector to underperform at 0.5 per cent for the fourth quarter — down from 10.3 per cent the previous quarter. This brings the full year growth to 5.6 per cent, down from 11.5 per cent in 2006.

The Singapore economy is expected to have slower growth this year — due to factors such as ever-rising oil prices and the continuing fallout from the United States’ sub-prime crisis — but economists do not forsee a recession taking place as the services and construction sectors, which are likely to remain buoyant this year, will support the economy.

Five out of the six economists interviewed by Today said they would not be revising downwards their forecasts — with all of them expecting growth to be 6 per cent or more this year.

“Domestic demand should remain fairly firm, especially on the construction side. There is no need for a downward revision of GDP growth for 2008 at this point,” said Citigroup economist Kit Wei Zheng.

For the fourth quarter, the construction sector expanded about 24.4 per cent year-on-year, up from 19.2 per cent in the previous quarter. The growth of the services sector was 8.3 per cent, same as the previous quarter, according to the MTI estimates.

The figures, based on data from October and November, gave an indication of how the economy performed in the last three months.

“In any case, the 6 per cent in the fourth quarter is due to a drop in pharmaceuticals, a volatile sector and that could be a wild card. If pharmaceuticals stage a recovery, that could swing the numbers upward even if electronics slows,” said Mr Kit.

HSBC economist Robert Prior-Wandesforde attributed the lower figures to the fact that the Singapore economy “is not sufficiently diversified”.

This means that “an exogenous shock” to just one or two sectors of the economy will be enough to affect GDP growth, said Mr Prior-Wandesforde.

The economists interviewed also do not find the low numbers for the fourth quarter alarming despite the strong growth in the previous quarters — 8.8 per cent in the second quarter and 9 per cent in the third.

DBS economist Irvin Seah said: “It’s more of a technical payback for quarter-on-quarter basis.”

Despite a projected economic slowdown this year, inflationary pressures are likely to accelerate further, said the economists.

In his New Year’s message, Prime Minister Lee Hsien Loong had said that growth could moderate to 4.5 to 6.5 per cent this year after touching 7.5 per cent in 2007. According to some estimates, inflation — which hit a 25-year high of 4.2 per cent in November — is expected to rise to 5 per cent this year.

UOB economist Ho Woei Chen attributed the higher inflation forecasts to higher food and oil prices and higher revisions on home prices.

Despite more muted sentiment on economic growth, there is no need to panic at this stage, said Mr Prior-Wandesforde, who anticipates that the GDP numbers will bounce back strongly in the first quarter of 2008.

While OCBC treasury economist Selena Ling doesn’t expect a “technical recession” when the economy contracts for two successive quarters, she said: “With downside growth risks, plus what’s happening in the US, the fear is that the deceleration is sharper than what people anticipate.”

Source : Today – 3 Jan 2008

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