MAS Forecasts More Moderate Growth Next Year

Source : The Straits Times, Oct 31, 2007

Diversified economy with less reliance on tech sector will soften external risks

SINGAPORE'S sizzling economy - on track for 7 per cent to 8 per cent growth this year - is expected to hum at a somewhat slower rate next year.
But it is still expected to power ahead at a 4 per cent to 6 per cent rate of expansion, thanks to a far more diversified economy.

In highlighting interesting shifts in the make-up of the economy yesterday, the Monetary Authority of Singapore's (MAS) latest macro-economic review threw up this dramatic fact: the electronics industry, once all-important to the economy, contributed a puny 4 per cent to economic growth in the first half of this year.

That is a sea change from as recently as 2000, when its contribution to growth was a hefty 40 per cent.

Relying less on this sector to bring in the goods is, however, a good thing for the economy, especially in the face of a number of factors that could cause some economic turbulence - and thus lead to lower growth - next year.

Among these: high oil prices, now at about US$93 (S$135) a barrel, and possible further volatility in global markets.

But, the central bank said, diversified growth sources should see Singapore through.

For example, the booming construction, marine and oil-rig building industries will lead economic expansion next year. The MAS said the building boom will have its biggest payoff for the economy later this year and into the next, as many projects will be ready to receive large payments.

And as high oil prices continue to drive oil exploration, demand will spike for oil rig projects. A record number of oil rigs is set to be delivered by Singapore's big shipyards next year.

Another strong performer will be the biomedical sector - pharmaceuticals and medical equipment, for instance.

'This year, we can really see a marked change in the diversification of our gross domestic product (GDP),' said CIMB-GK economist Song Seng Wun. 'It's the first time since the Asian financial crisis that we have this kind of balanced growth.'

Another key driver of growth this year, the MAS said, was 'asset market-related' activities - related to the property and financial services sector.

This contributed almost 30 per cent of GDP growth in the first half of this year, up from just 16 per cent for 2006.

It includes the wealth advisory and capital market segments, and the construction sector, which has been driven by the property boom.

This has also spilled over to financial and business services, where loans to the building and construction industry has hit double digit growth since the second half of last year.

Economists that The Straits Times spoke to are more optimistic about next year's growth than the MAS.

CIMB-GK's Mr Song is looking at a baseline growth of 6.5 per cent next year, while Standard Chartered economist Alvin Liew has set a 5.7 per cent target.

'Growth will still be strong in various sectors, but it won't be surging at the rates we've seen this year,' he said.

But economists say one crucial aspect to watch out for is rising inflation.

It hit 2.9 per cent in August - the biggest monthly rise since 1994.

MAS expects inflation of 1.5 per cent to 2 per cent this year, and up to 3.5 per cent for the first half of 2008.

But it expects this to ease in the second half of the year, with inflation at 2 per cent to 3 per cent for the whole of 2008.

'Ultimately, if we have high inflation, that could be destabilising for the economy. But we don't think that's a big risk,' said Mr Song.