Growth Forecasts For Next 2 Years Up

Source : TODAY, Tuesday, 20 November 2007

Average 8.1% Growth In First 3 Quarters Points To Positive Outlook, Says Analysts

Singapore has raised its economic growth forecasts for this year and next, despite concerns the extend of the fallout of the US sub-prime mortgage crisis.

The Ministry of Trade and Industry (MTI) is forecasting GDP expansion at the upper end of the range of 7.5% to 8.0% this year, up from its earlier 7-to-8% band - after growth in the first 3 quarters averaged 8.1%. The MTI is also expecting the economy to expand between 4.5% and 6.5% next year, higher than its previous forecast of 4% to 6%.

In the third quarter, the economy expanded by 8.9%. Growth was led by the financial sector, which surged nearly 20% on strong domestic banking, wealth management services and offshore lending activities, the MTI said. Construction growth remained robust on strong building activities in the industrial and commercial segments, with the sector expanding 17.7% in the quarter.

"Loans growth has been impressive and we are not seeing signs that bank lending is tapering off with the construction industry still going strong," Bloomberg quoted Mr Song SengWun of CIMB-GK Research as saying. "We're expecting growth to exceed 8% this year."

Mr Ravi Menon, Second Permanent Secretary at the MTI, said the outlook for Singapore remained "positive", although growth prospects were cloubed by sub-prime problems plaguing the US economy. EU growth is expected to soften as a strong Euro erodes export competitiveness, while the Chinese economy will continue to grow at a double-digit pace, he added.

"The essential scenario - or market consensus - is that the US economy will resume healthy growth in the second half of 2008, which will support GDP growth in Singapore at the upper half of the forecast range," he said.

"However, if the sub-prime problem worsens and the housing market goes into a deeper slump, the US economy could face a more protracted slowdown. Under this secenario, Singapore GDP could come in at the lower half of the range," he said.

The MTI's forecasts for the Singapore economy will hold even if the US economy grows at a modest 1.5% or slightly less, but if the expansion slows to "below 1%, it's harder to say" what the broader impact would be, he said.

According to Citigroup economist Dr Chua HakBin, while a US recession could not be ruled out, the Singapore economy is sufficiently diversified so its dependence on the world's largest economy is reduced.

"Regardless of what happens to the US market, the marine and offshore orders will go ahead - oil prices will remain high anyway," Dr Chua said.

Sectors such as healthcare and biomedicals are "not really sensitive to the US business cycle. There are enough separate engines from the ones that are more sensitive to the US cycles, such as wholesale trade and electronic cycle, to generate that growth", said Dr Chua.