Q3 Economic Growth Likely To Be Strong: Economists

Source : The Business Times, October 9, 2007

Expected 7.5% jump seen as a return to more normal rates

SINGAPORE'S monetary policy will probably be left unchanged this week despite higher inflation, while annualised third-quarter economic growth is likely to be strong, if just half that in the unusually strong second quarter.

A Reuters poll of 11 economists forecast that the advance estimate would show gross domestic product expanded by an annualised, seasonally adjusted 7.5 per cent in the three months to end-September after 14.4 per cent in the second quarter.

Economists stressed that this was a return to a more normal rate rather than anything more worrying.

They said the economy was still profiting from strong growth in services, particularly banking, and construction, and noted that manufacturing output expanded by 22.1 per cent and 13.8 per cent respectively in July and August from a year earlier due to strong biomedical and transport industries.

From a year earlier, the US$129 billion economy was expected to have grown 9.6 per cent, the median of 10 economists' forecasts showed. The government has forecast 7-8 per cent growth this year.

All 11 economists expected the Monetary Authority of Singapore (MAS), the central bank, to stick to its 31/2-year-old modestly tight policy even though a recent pick-up in consumer prices took inflation to a 12-year high of 2.9 per cent in August.

The MAS conducts policy through the exchange rate, steering the Singapore dollar within an undisclosed band against a trade-weighted basket of currencies, rather than by adjusting interest rates like most central banks. It issues policy statements twice yearly.

'The sub-prime crisis and tighter global credit conditions have had a limited economic impact so far,' Citigroup economist Chua Hak Bin said.

But he said that the probability of tighter policy next year had increased because of rising consumer prices and risks that the economy could overheat after four years of strong growth.

'Lower Singapore dollar interest rates, following Fed rate cuts, could paradoxically exacerbate demand pressures,' Mr Chua said.

Yeo Han Sia, an economist at Bank of America said: 'While lower import prices from a strong Singapore dollar and a flexible labour market have helped dampen price pressures in 2006 to 2007, consumer prices appear to have caught up with the strong economy in recent months.' - Reuters