Govt cuts forecast again to a range of -5% to -2%; sharp rebound unlikely
THE Government has downgraded its growth forecast again amid what it brands the 'sharpest, deepest and most protracted recession' Singapore has ever faced.
What used to be the worst-case scenario a few weeks ago has now become the best outcome with the economy tipped to contract by between -5 and -2 per cent this year, according to the Ministry of Trade and Industry (MTI) yesterday.
-- PHOTO: WWW.FLICKR.COMThe new figures reflect just how fast the global economy is deteriorating: just three weeks ago, the MTI forecast that gross domestic product (GDP) growth would come in at -2 to 1 per cent instead of between -1 and 2 per cent.
A 5 per cent slump this year would be Singapore's worst, beating the record of -3.8 per cent seen pre-independence in 1964. The 2001 recession saw a 2.4 per cent contraction.
The MTI said the downward revision was largely due to a faster and deeper decline in global economic activity, and stronger ripple effects on key sectors.
Said Second Permanent Secretary Ravi Menon yesterday: 'What took us by surprise...is the depth of the deterioration in global economic activity and, second the spillover it has on the region and Singapore.
'Typically you do not see this kind of collapse in trade so early in the cycle.'
Downgrades in consensus forecasts for key economies such as the European Union and those in Asia, plus poor retail sales and jobs figures from the United States also added to the more pessimistic outlook.
Mr Menon said the upper end of the forecast is based on a 'V-shaped' rebound of the Singapore economy in the second half of this year, while the -5 level stems from an 'extended U-shaped' scenario with no 'clear recovery' this year.
'Past recessions in Singapore have always ended with V-shaped recoveries... but the nature of the current recession is different and the likelihood of a sharp rebound appears low,' he added.
OCBC Bank economist Selena Ling said: 'They appear to have bitten the bullet and included a worst-case scenario of -5 per cent, which supposedly covers most of the potential downside risks.'
Dr Chua Hak Bin, Citigroup's head of Singapore equity research, added: 'You also probably want to paint a scenario that could be fairly dire if you want to actually ask the public, the Parliament and the President for the right to tap on the reserves.'
Preliminary estimates showed that the economy grew 1.2 per cent last year compared with 7.7 per cent in 2007. Updated data will be out late next month.
Other figures out yesterday showed things were worse late last year than initial data showed. GDP shrank by 3.7 per cent in the fourth quarter, worse than the 2.6 per cent fall in the advance estimate.
It also plunged about 16.9 per cent in the last quarter from the previous three months - steeper than the 12.5 per cent retreat in the flash estimates and the largest such quarterly decline on record.
Economists say this year is likely to see year-on-year GDP contractions in the first three quarters before mild growth in the final quarter. They add that the slump should be most severe in the first quarter.
Manufacturing is estimated to have contracted by 4.1 per cent last year, down from growth of 5.8 per cent in 2007, as key sectors were hit by the rapid drop in demand from major markets especially, in the final quarter last year.
Total trade rose 9.6 per cent to $928 billion last year, but is tipped to slump by between 17 and 19 per cent this year - down from the previous forecast of a 6 to 8 per cent drop.
Non-oil exports are projected to dip between 9 and 11 per cent, compared to the previous prediction of between -1 and 1 per cent.
A silver lining is that lower oil and food prices should rein in inflation, which is now tipped to be between -1 and 0 per cent instead of 1 to 2 per cent. But job losses will rise, with unemployment reaching levels seen in past recessions.
However, sectors such as health, construction and the civil service will continue hiring, and new jobs will be created from the integrated resorts and recent investments in manufacturing.
HSBC economist Prakriti Sofat said: 'All eyes will now be towards the Budget, which no doubt will be aggressive, with businesses and households receiving a fair bit of help.'
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