Saturday, November 22, 2008

Deeper Downturn In 2009: MTI

Source : The Business Times, November 22, 2008

GDP down 0.6% in Q3; 2008 growth cut to around 2.5%; 2009 GDP outlook: -1 to 2%

THE Singapore economy may well contract by one per cent next year - with key sectors suffering weak or no growth - as the global downturn deepens further, the Ministry of Trade and Industry (MTI) expects.

In its latest downgrade of the economic outlook, MTI has now pared its 2008 GDP growth estimate to 'around 2.5 per cent' - from a 3 per cent forecast just last month. At the same time, MTI has put out a wider-than- usual early estimate of 2009 growth - a three-point range from one per cent contraction to 2 per cent growth, reflecting the exceptional uncertainties at hand.

The revised 2008 growth implies that the economy may see a Q4 'reprieve' - if purely on base effects - following a Q3 contraction of 0.6 per cent that brings GDP growth for the first nine months to just 2.8 per cent.

In quarter-on-quarter terms, the economy has now sunk for two straight periods - by 5.3 per cent in Q2 and 6.8 per cent in Q3 - or, in other words, it is in technical recession.

Going by the 2.5 per cent full-year estimate, the year-ago pace is expected to rebound to about 1.6 per cent in Q4 - though MTI Permanent Secretary Peter Ong made clear yesterday that the outlook ahead is fraught with weakness and uncertainty.

Indeed, even with just one month to go in the year, private-sector economists' estimates of Singapore's 2008 growth still lag the official forecast - and theirs suggest the economy would be in the red in Q4 as well, and through at least the first half of 2009.

The last time the economy suffered a stretch of negative quarters was in 2001 - with three periods of quarter-on-quarter contraction, and four quarters of year-on-year declines through Q1 2002. That year, 2001, Singapore's GDP shrank 2.4 per cent in the wake of a global tech slump and a Sept 11-triggered downturn.

Following several post-recovery boom years, economists see a full-year slump for the Singapore economy in 2009.

'What we saw as a limited slowdown in one or two sectors earlier this year has now become a much more broad-based slowdown affecting most sectors of the economy,' MTI's Mr Ong noted in a media briefing yesterday.

From a robust Q1 pace of near-7 per cent, the economy has dipped in Q3, with the fall in external demand notably evident in Singapore's electronics output and non-oil exports of late.

NODX - non-oil domestic exports, the key trade measure - is now projected to fall by 5 to 7 per cent in 2008, and possibly by one per cent next year.

And 51 months of consecutive growth in visitor arrivals till May this year have reversed into four months of declining arrivals from June to September, Mr Ong pointed out. As a result, the hotels and restaurants industry saw a 0.2 per cent fall in output in Q3 - and will likely remain affected by weak sentiment and a slowdown in global travel next year.

Financial services will also be hard hit in the quarters ahead as the markets remain volatile, Mr Ong said.

On the jobs front, the unemployment rate is likely to rise above the Q3 level of 2.2 per cent as layoffs mount.

Already, there has been a 19 per cent drop in job creation in Q3 from Q2. The labour outlook is not helped, too, by declining productivity - a trend which may not be purely statistical. The latest figures see productivity falling for a fourth straight quarter, sharply by 9.6 per cent in Q3.

One bright spot Mr Ong offered is 'a strong pipeline' of investments in pharmaceuticals and chemicals that are expected to come onstream this year and next.

Investment commitments for the first nine months totalled some S$15.8 billion, and for the full year, remain on track to hit the S$17 billion-S$19 billion target.

The other silver lining - inflation, the big scourge earlier in the year - is now expected to ease sharply to just 1-2 per cent in 2009, with the recent plunge in global commodity prices. For 2008, consumer prices would have jumped 6-7 per cent on average.

Ending on a positive note, Mr Ong emphasised that MTI remains confident on Singapore's ability to ride out the crisis.

The economy remains competitive, its fundamentals are still strong, he said, and it has the resources to help businesses retool and reskill during the downturn to emerge stronger than before.

While the business financing aid measures announced yesterday are welcome, analysts say that more is needed fast, in terms of monetary and fiscal policy fine-tuning.

Citigroup economist Kit Wei Zheng, for one, reckons that a further easing of monetary policy via a downward band re-centring 'may be on the cards once market conditions stabilise'. The new GDP and inflation forecasts also 'reinforce the case for a forceful and rapid fiscal easing, even before the January Budget is announced', he added. Citigroup is looking at possibly three negative quarters, year-on-year, from Q1 2009.

Most analysts see a need for monetary action before the next scheduled policy meeting in April. 'Monetary moves have to be pre-emptive and deepening growth risks call for pro-active moves,' says one analyst.

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