Wednesday, September 17, 2008

Growth May Fall Below 4%

Source : The Straits Times, Sep 17, 2008

Shocks in financial markets make prospect increasingly likely

THE dramatic events in financial markets this week have made it more likely that Singapore's growth may fall below 4per cent this year, according to economist Choy Keen Meng.

Dr Choy, the lead economist for macroeconomic forecasting at the Economic Growth Centre (ECG), said yesterday that there was a more than 50 per cent chance that expansion would fall below 4 per cent.

He said a team of economists recently predicted gross domestic product growth to come in at 4 per cent - in line with the Government's 4 per cent to 5 per cent forecast.

This forecast, however, was before Monday's stunning demise of two of Wall Street's largest investment banks, Lehman Brothers and Merrill Lynch.

Dr Choy said the spillover could spread to the world economy should the credit crunch worsen and consumers and investors become even more bearish.

With a global economic slowdown in train, the ECG predicts that growth for the July-September quarter will come in at just 1.9 per cent. It will rise in the following three months to 4.9 per cent on the back of an improved performance in the manufacturing and services sectors.

A rapid pickup next year, however, is unlikely, with growth expected to come in at a conservative 4.2 per cent for the year.

The manufacturing sector is expected to contract by 4.2 per cent this quarter - less than the 5.2 per cent contraction in the second quarter - and grow by 1.3 per cent in the fourth quarter.

One reason for the pickup in factory output is the growth in the electronics sector, a key component of manufacturing, which is expected to expand to 10.5 per cent this quarter.

There are, however, worrying signs that this may not be sustained.

The Electronics Leading Index, a forward-looking indicator of electronics demand, shows that the chip sector may be due for a contraction. Structural changes have led to a loss of competitiveness among chipmakers here.

Construction is expected to moderate to 8.8 per cent in the fourth quarter from this quarter's expected 15.1 per cent growth as the property market cools.

Expansion in the services sector is expected to decelerate to 4.8 per cent this quarter but recover to 7.3 per cent the following quarter, even as domestic demand weakens and tourism numbers shrink due to the slowdown.

Dr Choy said the Formula One race two weeks from now might not attract as many tourists as hoped for.

Inflation, at least, seems to be retreating. Prices may have peaked, as forecasts show that inflation is expected to come down next year to 3 per cent from 6.7 per cent this year. This suggests that the Government will now turn its focus away from combating high prices to encouraging growth.

Dr Choy suggested that a fiscal stimulus package from the Government would be useful to boost growth.

The labour market is expected to be quite robust despite the economic situation. About 51,000 jobs are expected to be created this quarter and 41,000 in the fourth quarter - well under the 71,400 jobs added in the second quarter.

Unemployment is expected to remain at between 2.3 per cent and 2.4 per cent for the rest of the year.


A rapid pickup next year is unlikely, with growth expected to come in at a conservative 4.2 per cent for the year.

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