The bets are on U: Economists

Events such as the Grand Prix are new growth drivers to help cushion the slowdown: Analysts

THE Singapore economy is in for at least a year-long slowdown, but there will still be growth, according to most economists surveyed by Today.

This is the U-shaped scenario painted by Prime Minister Lee Hsien Loong during his May Day Rally speech on Thursday, which predicts that it could be next year before the United States economy sorts itself out and Singapore would be “loaded down significantly”.

In his speech, Mr Lee had also painted two other scenarios – the best-case V, where the US experiences just a mild recession with growth on track later in the year, or L, the gloomiest and most unlikely assessment of “an extended and severe downturn” that could stretch for 10 years.

While most economists are placing their bets on U, a more protracted downturn, they are still confident of Singapore achieving a 4 to 6 per cent economic growth rate for this year.

“If it’s U, growth will probably be at the lower end of the four to six per cent forecast. If it’s V, it’ll be at the higher end,” said Mr Leong Wai Ho, Barclays Capital associate director and regional economist.

A strong proponent of the U-shaped scenario, Standard Chartered Bank said the current downturn is led by the consumer, unlike the previous 2001 “V-shaped” corporate-led recession.

“The US housing market is weak, the jobs market may be turning down, credit conditions are tighter and there is increased uncertainty about the stock market … in such a climate, even US firms that are in good shape will be reluctant to invest at home,” said the bank in a recent report.

To UOB economist Jimmy Koh, one of the main reasons for the slower recovery is that banks need time to repair their battered balanced sheets that resulted from the sub-prime crisis. That leads to tighter credit conditions that inhibit the growth of the economy.

While exports and manufacturing, especially the electronics sector, will take a step back in such a slowdown, Mr Vishnu Varathan, economist at research house Forecast, believes the growth momentum from construction projects will prop up the economy for the year.

Referring to sectors such as services, Mr Koh said: “The new-found growth engines from Singapore restructuring its economy have also begun to yield results.

“Next year, the integrated resorts will kick in. There are also various events, such as the Grand Prix and the Youth Olympics, that will provide the cushion for Singapore’s economy at least for the next one to two years.”  
Source : Today – 3 May 2008

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