Source : The Business Times, 20 November 2007
Easing resource crunch, cyclical downturn will prevent overheating: officials
The Ministry of Trade & Industry has raised slightly its forecast of GDP growth in 2008, but maintains that the economy has not become 'too hot'.
In a somewhat unusual move, it has upped the 2008 growth forecast by half a point to 4.5-6.5%. For 2007, with the year’s growth pretty much in the bag, MTI has narrowed the forecast to 7.5-8%.
GDP growth in the third quarter has turned out a slower-than-expected 8.9% - lower than the flash estimate of 9.4%, due mainly to weaker manufacturing growth. This brings GDP expansion in the first nine months of 2007 to 8.1%, which spells, going by the official forecast, a slowdown in Q4. But MTI says it expects the growth momentum to continue into Q4 as sustained growth in the EU and Asia offset a somewhat softer pace in the US.
MTI’s forecast for 2008, however, amounts to a ‘moderation in growth towards the economy’s underlying potential rate after four years of abovetrend growth’, the ministry says.
The economy should grow in the upper half of the 4.5-6.5% range next year if - as the market consensus expects - the US economy rebounds in the second half of 2008 from a first-half slowdown, MTI says.
But, if the US sub-prime problems worsen or if oil prices continue to soar, and a sharp, protracted US slump ensues, Singapore’s growth could be nearer the lower end of the forecast.
At a briefing on the Q3 GDP data yesterday, MTI’s second permanent secretary Ravi Menon told reporters that Singapore’s 2008 growth forecast should be intact even if US economic growth slows to about 1.5% next year.
MTI’s forecast also assumes that oil prices will round out the rest of the year at an average US$90 a barrel, and ease to US$80-85 in 2008.
As for the weak US dollar, Mr Menon said the concern, if any, is not so much on any impact on Singapore’s exports, but if it should see a precipitous decline that triggers off massive selloffs in the financial markets and second-round effects on the global economy. ‘It’s one of the wild cards,’ he added.
For now, the key concern here remains centred on rising price pressures, though Mr Menon reiterates the government’s assessment that there is no overheating in the system.
Resource constraints are being eased as supply catches up with demand, he said, citing the release of vacant land and state buildings for lease, and increased land sales in business parks for companies’ backroom operations, all of which should check the rise in office rental costs.
Foreign worker quotas will also be increased to ease the labour bottlenecks in construction.
Not least, a cyclical slowdown in the economy next year will help cool demand pressures, Mr Menon said.
‘Has the economy gotten hotter? Yes,’ he said. ‘Has it got too hot? No.’ Singapore’s short and medium-term economic prognosis remains good, he added.
The Monetary Authority of Singapore’s officials at the briefing also maintained that - apart from the one-off technical effects of the Goods and Services Tax hike and the taxman’s upcoming revision of the annual values of HDB flats, which will boost the consumer price index - underlying cost pressures haven’t gone out of whack.
The underlying inflation rate - excluding housing and private road transport costs - is still expected to average 1.5-2% this year and next.
MAS deputy managing director Ong ChongTee said its monetary policy stance ‘remains appropriate’ and will be reviewed, as scheduled, next April.
Economists such as Citigroup’s Chua HakBin reckon the risk of further MAS tightening is high early next year, as the move to a ’slightly’ steeper slope last month ‘may be too gentle a move’.
Citigroup has raised its 2008 inflation forecast to 3.8% from 3%. It expects CPI inflation to swing from a 5% average in the first half of 2008 to 2.8% in the second half. A 20% rise in imputed rents could drive up headline CPI by 1.5-2 percentage points, Dr Chua estimates.
Merrill Lynch’s Emerging Asia currency strategist, Simon Flint, says he is not concerned about overheating risks here.
‘MAS reacted very quickly to rising price pressures,’ he said, referring to last month’s monetary tightening. ‘They’re being reasonably prudent about inflationary threats. ‘I’m optimistic about sustainable growth,’ he added.
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