Growth Forecasts Get Another Trimming

Source : The Business Times, September 4, 2008

Construction sector, financial services buck trend but GDP predictions bleak

While they have slashed their forecasts of manufacturing and overall GDP growth, economists are apparently looking to better numbers in the construction sector and financial services this year.

The Monetary Authority of Singapore (MAS)'s latest poll of economists shows that they have cut their forecasts of Singapore's 2008 GDP growth to a median 4.2 per cent, down from 5.5 per cent in the previous poll three months earlier.

But most of the GDP forecasts from the poll are basically out of date, as the survey was done in the second week of August, just after the Q2 economic results were released.

The poor figures - GDP grew 2.1 per cent in the quarter, and contracted 6 per cent against the preceding Q1 - prompted a round of cuts to the growth forecasts, as the official projection itself was at the same time revised down to 4-5 per cent. A Ministry of Trade and Industry official even specified the 'lower half' of the range.

And in the weeks since, following the release of dismal July industrial production data - output fell almost 22 per cent - economists have cut their forecasts further. The market consensus of Singapore's 2008 GDP growth has gone below 4 per cent, with some economists at just above 3 per cent.

So, chances are, current market forecasts could be as much as one percentage point lower than indicated in the MAS poll.

In any case, the 20 economists who responded to the poll last month slashed their estimates of manufacturing growth (to just one per cent for the full year) but forecast higher for not only construction and financial services, but also wholesale and retail trade, as well as private consumption.

The construction sector is now expected to grow 15 per cent this year (up from sub-12 per cent), and financial services 11 per cent (from an earlier forecast of 9 per cent).

The economists also forecast 2.7 per cent GDP growth in Q3, and 4.8 per cent in Q4, although these too may likely be on the low side now.

United Overseas Bank economists yesterday said the risks of a technical recession here - if Q3 also sees negative GDP numbers on a q-on-q basis - have risen following July's manufacturing slump.

All eyes will be on the August industrial production figures, due to be released towards the end of September. Another output slump and chances of a 'manufacturing-led technical recession' will surge, with possibly yet another round of cutbacks to the full-year GDP number.