Multiple Engines Drive Growth In Second Quarter To 8.6%

Source : The Straits Times, Saturday, 11 Aug 2007

S’pore economy set to keep up strong momentum; 1%-2% inflation seen for ‘08

FINANCIAL market drama notwithstanding, Singapore’s economy is expected to maintain its strong momentum, after expanding by a blistering 8.6 per cent in the April to June quarter.

Notably, economic activity sprinted ahead at its fastest pace since the beginning of last year, this time not because of the performance of its electronics industry, but in spite of it, according to figures released by the Ministry of Trade and Industry (MTI) yesterday.

While the global appetite for locally made electronics deteriorated, second-quarter gross domestic product growth picked up speed nonetheless, on the back of sizzling domestic demand.

With double-digit growth in the construction and financial services sectors, overall growth bettered the 6.4 per cent registered in the previous quarter.

This is despite electronics output eking out a mere 2.5 per cent expansion and electronics exports falling 14 per cent.

It is this diversification away from what used to be the dominant workhorse of the economy that makes up ‘the story behind the numbers’, said Mr Ravi Menon, MTI’s Second Permanent Secretary, at a press conference.

‘One of the most striking things of the current cycle is how well the economy has done, despite the slump in electronics,’ he said.

For one, services have become a key contributor to the economy. The sector grew by 8.4 per cent, compared with a year ago.

Within manufacturing, there are also four other growth engines besides electronics, noted Mr Menon.

These are transport engineering, biomedicals, chemicals and precision engineering.

This has enabled the manufacturing sector to manage 8.3 per cent growth, despite weakness in electronics.

Construction has become the fastest expanding sector in Singapore, as building activity soared 17.6 per cent in the second quarter, compared to a year ago.

The next high-growth industry is financial services, which expanded by 17 per cent, powered by healthy lending activity at home, and burgeoning regional demand for private banking services.

Meanwhile, the hotels and restaurant trade picked up slightly, rising 5.2 per cent.
Overall growth momentum gained pace in the second quarter, surging by 14.4 per cent over the first.

Such momentum, coupled with the diversity of growth sources, means Singapore is more resilient in the face of a slump in any single industry.

As a result, the MTI is forecasting economic growth to range between 7 per cent and 8 per cent this year.

However, two major risks to this rosy outlook are the ‘negative spillover from the United States housing market’ and potential oil supply shocks.

Separately, the Monetary Authority of Singapore foresees the consumer price index (CPI) rising faster next year.

MAS deputy managing director Ong Chong Tee said the central bank’s preliminary CPI inflation forecast for next year is between 1 per cent and 2 per cent, compared to the 0.5 per cent to 1.5 per cent it expects for this year.