H1 Surprise Boosts Govt Growth Forecast

Source : The Business Times, August 9, 2007

Global backdrop favourable, S'pore ship is ready: PM

SINGAPORE) Economic growth in the first half of 2007 turned out to be higher than expected, and the government has raised its forecast for full-year growth to 7-8 per cent, Prime Minister Lee Hsien Loong announced in a highly upbeat National Day message.

While the upward revision of the full-year forecast was anticipated - it brings the official estimate in line with market projections - news that the economy grew 7.6 per cent in the first half, or 0.3-point higher than the advance estimates indicated last month, surprised most economists.

Details of Singapore's second-quarter economic performance will be released tomorrow. But weak manufacturing data of late had led many economists to cut their estimates of Q2 GDP growth by an average 0.2-point from the 8.2 per cent flash estimate.

Instead, a 7.6 per cent first-half pace now suggests that Q2 growth could be as high as 8.7 per cent, assuming a small 0.1-point adjustment to the Q1 number to 6.5 per cent.

DBS Bank economist Irvin Seah believes the Q2 upside came from the services and construction sectors, which more than made up for the manufacturing slack.

And UOB economist Alvin Liew estimates that the Q2 momentum pace, in seasonally adjusted annualised terms, would have been a hot 14 per cent, faster than earlier announced.

'Personally, I don't think that pace of growth can be sustained,' he said, adding that he's factoring in growth to slow to minus-2.3 per cent quarter on quarter, seasonally-adjusted, annualised rate.

And even with a Q3 moderation, the economy would still be on track to achieve 7-8 per cent growth year-round, he added.

Indeed, Singapore has much to cheer about this National Day, PM Lee said in his message, broadcast last night.

'While the global financial markets have been choppy the last few days, the medium-term fundamentals for Asia remain strong,' he said.

'We celebrate National Day in a happy mood. It has been another good year for Singapore. Altogether now, we have had four good years of growth.'

The economy added 111,000 jobs in the first half - the highest number ever - and unemployment is at a low 2.4 per cent. 'Workers are enjoying good wage increases and higher bonuses because businesses are doing well,' Mr Lee said.

The outlook ahead is favourable, and Singapore - at the heart of a rising Asia - is gearing up for 'new and exciting' projects.

If Singapore and Singaporeans 'keep on adapting and readapting' to global changes, 'we can keep growing strongly for many more years', he said.

The one potential party-pooper: Widening income gaps, which could threaten the country's social harmony and national cohesion, Mr Lee said.

'We cannot stop or reverse this global trend. But we can do a lot to help Singaporeans cope with it.' The basic approach is to grow the economic pie and have everyone 'benefit from Singapore's success'.

Meanwhile, the government is making changes to help Singaporeans 'work longer, earn more and build up' their retirement savings, including improving the Central Provident Fund scheme.

Singaporeans have 'every reason to be confident about our future', Mr Lee said. 'The global backdrop is favourable. The winds and tides are with us. Our spirit is high, and our ship is ready.'