Singapore Economy Faces Triple Threat

Source : The Straits Times, May 24, 2008

# RISING INFLATION
# SLOWER GROWTH
# WEAKER EXPORTS

SINGAPORE is facing a triple whammy of economic threats in the form of surging inflation, slower-than-expected growth and weaker exports, the Government has warned.

In its Quarterly Economic Survey, the Ministry of Trade and Industry (MTI) said yesterday that first-quarter economic output had grown by 6.7 per cent compared to the corresponding period last year.

Rising Inflation

That fell short of a flash estimate of 7.2 per cent released last month, which was based mainly on January and February data. Analysts say the key manufacturing sector stumbled in March.

The figures look better when compared to the preceding quarter. Economic output jumped 14.6 per cent in quarter-on-quarter terms, rebounding from a 4.8 per cent contraction in the fourth quarter of last year. But even that figure fell short of expectations.

Another key worry is rapidly rising global oil and food prices. Singapore's inflation rate rocketed to a new 26-year-high of 7.5 per cent last month, continuing its recent rampaging form that shows little sign of easing in the next two months.

In response, the MTI and the Monetary Authority of Singapore revised the full-year inflation forecast to 5 per cent to 6 per cent, from 4.5 per cent to 5.5 per cent earlier - the second time the forecast has been raised this year.

Slower Growth

Casting a further pall, International Enterprise Singapore announced yesterday that it was cutting its growth forecast for non-oil domestic exports (Nodx) to between 2 per cent and 4 per cent, from the previous 4 per cent to 6 per cent projection.

And while this year's projected total trade growth is still 6 per cent to 8 per cent, the lower Nodx forecast signals flagging demand for Singapore products.

MTI Second Permanent Secretary Ravi Menon said at a press conference yesterday that the global slowdown was not a surprise.

'Consensus forecasts for countries such as the US, European Union and Japan have come down, with the US most likely in or near recession. Asian economies such as China and India are expected to continue growing at a healthy rate, albeit slower than last year.'

The impact on the Singapore economy will be mixed, Mr Menon said, with export-oriented and sentiment sensitive sectors worse hit, while domestic-oriented industries will perform better.

Weaker Exports

Therefore, the MTI had maintained its economic growth forecast for this year at 4 per cent to 6 per cent.

Mr Menon said the downside risk of a deeper-than-expected US recession seemed to have lessened slightly, thanks to strong actions by the Federal Reserve to restore market confidence.

Of greater concern to the MTI is rising prices.

Mr Menon said inflation risks had overtaken slowing growth as a worry. However, he expects inflation to hover at current levels and does not believe the central bank's monetary policy stance, last modified last month, needs to be tweaked for now.

Economists were mixed in their views of how Singapore would be affected for the rest of the year.

CIMB-GK economist Song Seng Wun said things were 'not doom and gloom, but more cloudy than a year ago' because of the heightened inflationary risks.

But Deutsche Bank's chief Asian strategist, Dr Chua Hak Bin, was more optimistic. 'A major positive is that the Government is in a strong fiscal position to respond, with tax cuts or higher spending, if the economy stalls.'nicholas@sph.com.sg