Singapore's economy is expected to grow by 4 to 6 percent this year, down from the previous forecast of 4.5 to 6.5 percent.
The downward revision is the result of deteriorating external economic conditions and greater downside risks, said the Trade and Industry Ministry, in a report on Thursday morning. According to the report, current conditions suggest that the US will likely enter a mild recession in the first half of 2008, but strong fundamentals, coupled with fiscal and monetary stimulus, will help support recovery in the second half.
If this happens, Singapore's economy will likely grow by close to 6 percent.
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But the government said a protracted slowdown in the US will hit external demand-oriented industries here, like wholesale electronics, and this may push growth to the lower end of the forecast range - at 4 percent.
Reacting to the downward revision of Singapore's economic growth, CEO and Chief Economist at CIMB-GK Research, Mr Song Seng Wun, said the data is within his expectations.
He said: "At this juncture, I still think that the high end of the forecast is achievable. Looking at the data in the fourth quarter, especially for the composite leading index, the fourth quarter managed to climb – I think 0.7 percent on a quarter-on-quarter basis. So that suggests that for the first quarter and probably the second quarter, we may see fairly decent growth."
Ravi Menon, Permanent Secretary, MTI, said: "What's important to remember is that in either scenarios, we're looking at slower growth this year, and slower growth should be viewed in the context of the trend growth that we've seen in the last four years. It represents a moderation to the economy's underlying potential rate of growth."
Singapore's economy in 2007 grew by 7.7 percent, a slower pace compared to 2006 when the economy grew 8.2 percent.
In the fourth quarter last year, the economy grew by 5.4 percent after a 9.5 percent growth in the previous quarter.
The star performer in Q4 was the construction sector which expanded by 24 percent. Another strong performer was the financial services sector which grew by 16 percent.
The manufacturing sector, however, saw a slowdown. It posted growth of 5.8 percent in 2007, slower than the 12 percent growth seen in the previous year.
The weakened growth was due to a 28 percent contraction in the biomedical manufacturing cluster as a result of plant maintenance shutdowns and changes in product mix.
Nonetheless, the government is not expecting Singapore to dip into recession.
Selena Ling, Treasury Economist, OCBC, said: "The key question really is – is the pharmaceutical (sector) going to see a quick rebound in the first quarter of this year and for the rest of this year? I think our take on that is that with the global slowdown, external demand for manufacturing will be affected aversely. We do not expect a very quick turnaround in manufacturing in the first quarter of this year."
But economists do expect consumers to tighten their purse strings because of higher inflation.
This year's government Budget is widely expected to contain measures to cushion the effects of inflation and the higher costs of living on the lower income group.
Halimah Yacob, Assistant Secretary-General, NTUC, said: "We cannot expect wage increases to be as good this year compared to last year, so the impact will be greater on them, the lower income group. Therefore, whatever proposals are being made in the Budget to help lower income workers will be greatly useful."
Despite slower growth and higher inflation, the government believes the moderation in economic growth will help ease some of the cost pressures on the supply side and in turn, dampen inflation. - CNA/so
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