Odds Of Below 4% S'pore Growth Now 'More Than 50%'

Source : The Business Times, September 17, 2008

The odds on Singapore's economic growth slowing to less than 4 per cent this year are now more than 50 per cent, says economist Choy Keen Meng of Nanyang Technological University (NTU).

Responding to questions from the media, Dr Choy said there is now five or six in 10 chances of that happening, after the latest upheaval in the financial markets.

'However, there are still lots of imponderables,' he said. 'Much depends on how the US Fed reacts to the latest crisis, and its impact on consumer sentiment.'

Dr Choy was speaking at a briefing on the latest set of macroeconomic forecasts from NTU's Economic Growth Centre (EGC).

EGC's official prediction puts Singapore's GDP growth this year at 4 per cent, which is consistent with the 4-5 per cent range given by the Government.

But EGC's forecast does not take into account the spillover effect from the latest news of Lehman Brothers' collapse and Merrill Lynch's sale to Bank of America, amid a deepening credit crisis.

On Monday, 158-year-old Lehman filed for bankruptcy protection under a massive weight of debt, while Merrill Lynch agreed to be taken over by Bank of America.

For the current quarter, NTU projects growth of 1.9 per cent, followed by a rebound to 4.9 per cent in Q4. Its GDP growth estimate next year is 4.2 per cent, suggesting a quick economic rebound appears unlikely.

At sectoral level, manufacturing is expected to contract 4.2 per cent before recovering to grow 1.3 per cent in the final quarter of this year.

'The writing was already on the wall when we look at the non-oil domestic exports (NODX) and factory output figures in July. Both were in negative territory,' said Dr Choy.

Singapore's NODX shrank 5.7 per cent in July, while factory output contracted a drastic 21.9 per cent.

Surprisingly, global chip sales have been affected little by the economic slowdown so far, as seen from the 5.3 per cent and 8 per cent sales growth in Q1 and Q2. But even though economists forecast 10.5 per cent and 12.4 per cent growth in Q3 and Q4, there are signs that a slowdown could happen as early as the first quarter of 2009.

Using the Electronics Leading Index - an EGC in-house index - as a guide, Dr Choy said a slowdown could hit in six to nine months, even though chip sales could post a recovery in the second half of next year.

Construction activity here is expected to grow at a slower 15.1 per cent this quarter and 8.8 per cent next quarter - down from 17.4 per cent in Q2, while services sector growth is projected at 4.8 per cent and 7.3 per cent this quarter and the next.

Commenting on the Formula One race here, Dr Choy said the event could fail to generate greater interest, partly due to the sluggish economic environment. But in the long term, events like F1 should bode well for tourism, he said.

Still, all is not gloom and doom. The economists expect consumer price index (CPI) growth to come down to 6.7 per cent in Q3 and 6 per cent in Q4, from 7.4 per cent in Q2. As the effect of the high energy and food prices wear off, next year's CPI growth could moderate to 3 per cent.

On labour market conditions, economist Randolph Tan sees continuing strength in that segment, citing strong wage growth and job creation in construction and services.

The unemployment rate is projected to remain stable at 2.3 per cent this year, but employment growth could drop to 51,000 and 41,000 in Q3 and Q4 respectively - down from 71,400 in Q2 this year.