It's Not As Bad As It Looks: Economists

Source : The Straits Times, April 15, 2009

GROWTH FORECAST SLASHED

Grim figures reflect past trauma but latest export data looks encouraging

SINGAPORE yesterday released the worst set of economic data in the nation's history and slashed its growth projection for the year, after exports collapsed in the first quarter by more than expected.

Exports last month rose 11 per cent over February. The rise in exports stemmed mainly from an increase in shipments to China and Hong Kong, underpinning China's economic rebound. -- ST PHOTO: ALPHONSUS CHERN

But economists say these grim figures largely reflect past trauma and do not necessarily mean the current economic situation is worsening significantly.

The Ministry of Trade and Industry (MTI) yesterday said the economy shrank in the first quarter by a drastic 11.5 per cent over the previous year and 20 per cent over the previous quarter - both record declines.

On the back of these numbers, the Government also downgraded its growth forecasts as well as its trade projections for the full year.

However, the dismal first-quarter figures are advance estimates that were heavily weighted on numbers from January and February, which bore the brunt of the downturn, said economists.

They added that more recent data, including last month's export figures that were also released yesterday, actually show an encouraging trend of economic improvement.

Exports in March rose a better-than-expected 11 per cent over February, on top of a 1.6 per cent rise in February over January, according to International Enterprise (IE) Singapore.

Although exports last month were still some 17 per cent lower than a year ago, the month-on-month increase was 'staggeringly strong', said HSBC economist Robert Prior-Wandesforde.

'It is the first back-to-back monthly rise we've seen in exports since July-August 2007, and it's also the biggest two-month rise since December 2005.'

The rise in exports stemmed mainly from an increase in shipments to mainland China and Hong Kong, underpinning the 'nascent rebound' in the Chinese economy following Beijing's multibillion-dollar stimulus package, noted OCBC economist Selena Ling.

This export pick-up comes on the heels of recent indications from a key leading indicator, the Purchasing Managers' Index, that factory output has been stabilising and may soon turn the corner.

Around the world, pockets of optimism have also emerged in recent weeks that suggest the worst phase of the recession may be over, packed away with the first quarter of this year.

In the United States, major banks Wells Fargo and Goldman Sachs recently beat earnings expectations, while the decline in retail sales has stabilised and manufacturing is expected to improve.

In China, imports of oil, iron and other raw materials rose last month, as did sales of homes and cars.

Still, MTI is only cautiously optimistic at best. It has sharply pared its full-year growth forecast, saying the economy could shrink up to 9 per cent.

To put this in perspective, consider that Singapore's worst-ever full-year performance, in 1964, came in at -3.8 per cent. Even in 2001, during Singapore's worst recession since independence, the economy contracted only 2.4 per cent. Explaining its dismal projection, MTI made it clear yesterday that the outlook for the rest of the year remains grim.

'While there are tentative signs of some stabilisation in the housing, financial and manufacturing sectors in the US, they do not point to a clear turnaround in economic activity,' it said.

But economists mostly shrugged off the bleak projection, saying a contraction of 9 per cent is unlikely. Even if it happens, given the severity of the decline in the first quarter, it merely implies that quarterly growth will be flat for the rest of the year, said Mr Prior-Wandesforde.

'The magnitude of the...revision seems exaggerated, and is perhaps an insurance against frequent revisions to forecasts given the still-uncertain global economic backdrop,' said Mr Rajeev Malik, head of India and Asean economics at Macquarie Capital Securities. The revision was MTI's third in under five months.

Citigroup economist Kit Wei Zheng said that MTI's new forecast is 'largely a technical adjustment' to the worse-than-expected first-quarter data.

Some currency experts also took heart from the less-than-expected easing of the Singapore dollar by the Monetary Authority of Singapore (MAS) yesterday.

OCBC forex strategist Emmanuel Ng said he detected 'a hint of nascent bullishness' within the MAS statement, which said the rate of decline in economic activity around the world is expected to moderate after falling steeply since the end of last year.