Monday, October 8, 2007

Strong Q3 Growth Expected

Source : TODAY, Monday, October 8, 2007

S’pore economy healthy and resilient despite US sub-prime turmoil

















THE United States’ sub-prime mortgage mess may have raised global uncertainties, but the Singapore economy retained healthy vigour in the July-September quarter, economists said.

Recent data indicated all engines fired strongly in the period, suggesting the Ministry of Trade and Industry’s advance estimate for third quarter gross domestic product on Wednesday will show the economy expanded 9.0 to 9.6 per cent from a year earlier, they said.

The Monetary Authority of Singapore (MAS), which will issue its semi-annual review at the same time at 8am on Wednesday, is expected to stick to its policy of a “modest, gradual appreciation” for the Singapore dollar. The MAS uses the tradeweighted Singapore dollar exchange rate, rather than interest rates, as its main policy tool because the city state’s trade flows dwarf the island’s domestic economy.

“Growth in the third quarter is likely to remain broad-based with the services industries sustaining strong growth while the recovery in construction continues to take hold. As a result, we could see third-quarter GDP growth coming in at around 9 per cent year on year,” said UOB economist Ho Woei Chen.

Ms Ho reckons industrial output grew “a robust 18.1 per cent year on year in July-August”, with manufacturing for that period “driven largely by the biomedical and transport engineering clusters which helped to compensate for weaker electronics
demand”.

“Even with flat output growth in September, the manufacturing sector should still be turning in around 11.5 per cent growth in the third quarter,” Ms Ho said.

Should third-quarter GDP come in strong as expected, UOB will likely raise its 7.5-per-cent full-year GDP growth forecast, she said.

Early August, MTI raised the full-year growth forecast to 7 to 8 per cent, from 5 to
7 per cent, after the economy’s expansion became more broad-based in the second
quarter amid upbeat business sentiment.

Some economists are even more positive about the economy. HSBC senior economist Robert Prior-Wandesford expects growth of 9.6 per cent for the third quarter and 8.5 per cent for the full year.

The strong domestic market, though, could become a victim of the turmoil caused by the sub-prime crisis.

“It would be interesting to see if earnings have taken a dip in the financial services sector, given the sub-prime crisis,” he said.

Mr Cem Karacadag, director of Credit Suisse’s Emerging Markets Economics Group, said in the bank’s Emerging Markets Quarterly report he expects the strongerthan-expected performance in the first half of the year to be offset by a slowdown in the US this half year, intensified in part by the recent financial market turmoil.

“We expect real GDP growth to slow to 6.5 per cent in the second half of the year, from 7.5 per cent in the first half, and thus to an average of 7 per cent in full year 2007, just within the Government’s 7-to-8-percent range,” said Mr Karacadag.

With a continued US slowdown in its sights, Credit Suisse has lowered its GDP forecast for 2008 to 6 per cent from 8 per cent.

According to an MAS survey of forecasters conducted in mid-August and released earlier this month, economists forecast an average 7.5 per cent growth this year,
higher than their June median growth forecast of 6 per cent.

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