Singapore's economy grew at a slower pace in the third quarter than earlier forecast, with GDP growth coming in at 8.9 percent when compared to the same period a year ago.
But the Trade and Industry Ministry said economic growth for the whole year should come in at 7.5 to 8 percent – at the higher end of its earlier target. For 2008, the forecast has also been raised upwards by half a point to 4.5-6.5 percent.
Singapore's third quarter GDP growth may have missed earlier forecasts, but it is still a touch higher than the 8.6 percent clip in the previous three months.
Trade and Industry Ministry officials said the short-to-medium-term prognosis for the economy is good.
Ravi Menon, Second Permanent Secretary of the Ministry of Trade and Industry, said: "The biggest risks remain external factors beyond our control – chiefly the state of the US economy, oil prices, and global financial market conditions. Barring negative shocks from these three fronts, economy should grow at a slower but more sustainable rate in 2008."
Growth next year is now forecast at 4.5 to 6.5 percent.
Private sector economists share the same downside concerns, but some noted that forces behind oil prices have changed.
Jimmy Koh, Head of Economics-Treasury Research at UOB, said: "I think the main difference about oil price right now is that oil price is demand driven. And that means it has a self-correcting mechanism. If global demand were to slow, oil price will correct on its own. It all depends on how the sub-prime episode will pan out. It's going to be choppier for the first six months next year."
Still, some analysts said the anticipated slowdown in the US economy may actually work out in Singapore's favour in some areas, for example, in helping to cool inflation.
Alvin Liew, Global Research Economist, Standard Chartered, said: "We are seeing a lot of domestic inflation coming on in the form of wages and office rentals. This would unlikely be addressed by the singdollar policy because it's domestic issues. We do expect the easing of the US market and slower growth itself to moderate our pace of growth next year. This will help cool markets and slow down prices a bit."
Mr Menon added: "Inflation has been on a slightly rising trend this year. This is reflected in a combination of one-off technical factors and underlying cost pressures. It's important to distinguish between the two to get a better sense of inflation risks to the economy.
"One-off technical factors include the GST increase in July this year and the revision in annual values by IRAS last week. Neither represents a sustained rise in inflationary pressures. The effects of both will wear off in the second half of 2008."
Inflation is expected to hover around 2 percent this year, and hit 3.5 to 4.5 percent in 2008. - CNA/so
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