Economy Surprises With Robust 7.2% Q1 Growth

Source : The Business Times, April 11, 2008

But MAS says growth is likely to ease in next few quarters as global outlook dims

Inflationary concerns outweigh downside growth risks - for now anyway - as the economy rebounded strongly in the first quarter. But GDP growth is expected to ease in the months ahead.

The 7.2 per cent flash estimate of Q1 growth - against sub-6 per cent consensus forecasts, and up from the preceding Q4’s 5.4 per cent pace - mostly surprised on the upside. In annualised, adjusted terms, the economy - far from slipping into a technical recession, after a Q4 contraction - grew almost 17 per cent in Q1, according to the advance figures based only on January and February data.

Notably, the manufacturing sector roared back after the previous quarter’s flat performance. According to the Ministry of Trade and Industry, the sector’s 13.2 per cent recovery was due to a surge in the biomedical cluster and a better showing by mainly the electronics and chemicals industries.

Growth was fairly broad-based across the economy, with the services sector maintaining pace at 7.6 per cent, led by the financial services. Construction growth slowed, but to a still robust 14.6 per cent.

The Monetary Authority of Singapore - which unexpectedly tightened monetary policy yesterday - had rather a lot more to say about the growth outlook.

Singapore’s economic growth is likely to ease in the next few quarters, says the central bank in its monetary policy statement.

Global growth prospects have worsened significantly of late, but regional resilience should continue to support Singapore’s growth, MAS says.

And while maintaining the official forecast of 4-6 per cent growth for 2008, it adds: ‘A more severe global downturn cannot be ruled out if there is a further escalation of the financial crisis in the US. If this occurs, Singapore’s growth will be adversely affected.’

Meanwhile, global inflationary pressures remain high, and Singapore’s consumer price inflation is expected to remain elevated in the first half of 2008, MAS says.

It now projects Singapore’s 2008 inflation rate to come in at the upper half of the 4.5-5.5 per cent forecast range.

‘Against this backdrop of continuing external and domestic cost pressures, an upward shift of the policy band at this point will help to moderate inflation going forward,’ it says.

While surprised by the Q1 GDP figures, economists are a little divided about how much the economy will be hit by the US recession that will likely show its hand in Asia later in the year.

Standard Chartered Bank’s forecasts for Singapore see GDP growth slowing sharply to just 2.8 per cent by Q4, averaging 4.5 per cent for the year.

On the other hand, HSBC economist Robert Prior-Wandesforde maintains that ‘domestic fundamentals remain highly supportive of growth’ and is sticking to his forecast of 6 per cent growth for 2008. He also expects no reversal of the monetary tightening at the next review in October - and sees the inflation rate easing to about 3 per cent in Q1 2009.

For at least one economist, though, the Q1 7.2 per cent GDP growth is simply ‘not high enough’.

Given the robust flash estimates for manufacturing, services and construction, the numbers just do not ‘add up’, says Daiwa Institute of Research’s P K Basu, who had forecast 8.4 per cent GDP growth for the quarter.

Could there have been a “computation error” somewhere, he wondered. Asked about this, an MTI officer ran through the data, and found nothing amiss.

The full details of Q1 economic performance, including March figures, will be released next month.