US recession may cause Singapore’s GDP growth to drop to 3%

The market generally expects Singapore’s economy to grow by 5.5 percent this year.

But economists at Nanyang Technological University (NTU) said if the United States goes into a recession, there is a 50 percent chance that Singapore’s GDP growth may drop to as low as 3 percent.

Generally, consumer demand is expected to slow down this year, whether or not the US goes into a recession.

Choy Keen Meng, Assistant Professor, Economics Division, Humanities & Social Sciences School, NTU, said: “Consumer spending would definitely be cut back because consumers in Singapore and all around the world are realising that the US economy is slowing, the world economy is slowing, and psychological reaction to that is to be more cautious in spending.”

If US goes into a recession, the electronics sector which tends to be driven by US demand is likely to suffer the hardest hit. NTU economists expect a 1.3 percent dip in chip sales then, versus a 6.9 percent recovery if the US holds up.

Experts said the construction sector will likely be Singapore’s main pillar of support in those difficult times. And while the services sector is more insulated from external pressures, they will not escape the ripple effects of the US recession on regional economies.

A bright spot, however, will be tourism-related services, which will benefit from upcoming projects like the Formula One night race and the integrated resorts.

Financial services are forecast to see a heavy slowdown from a 12.5 percent growth in 2007 to just 6.5 percent this year.

Overall, inflation is expected to stay high.

“Unfortunately, inflation will remain very high this year. We are forecasting about 7 percent inflation in the first quarter and about 6 percent inflation in the second quarter,” said Prof Choy.

Inflation is then expected to ease in the second half of this year to 3 to 4 percent. For the whole year, NTU expects inflation to come in at 4.5 to 5 percent. – CNA/so

Source : Channel NewsAsia – 27 Mar 2008

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