Thursday, September 3, 2009

Bleeding stops, speedy recovery sets in

GDP may shrink just 3.6% this year, grow 4.5% in 2010: survey

(SINGAPORE) Things are looking up for Singapore's economy, which may shrink far less than was feared until recently.

The median forecast by economy watchers for this year is now a 3.6 per cent contraction in GDP, which suggests a much brighter outlook than the 6.5 per cent decline forecast in June. This also exceeds the government's official expectation of a 4-6 per cent contraction.

And, looking further into the horizon, the latest quarterly Monetary Authority of Singapore (MAS) survey of professional forecasters found that expectations for next year's GDP growth have risen to 4.5 per cent as well.

Optimism about the economy has been palpable for a while now, as 'data releases have been improving more quickly than most people anticipated', said David Cohen, director of Asian Economic Forecasting at Action Economics.

Singapore's second- quarter economic performance was unexpectedly strong - GDP grew 20.7 per cent from the first, and contracted 3.5 per cent year- on-year.

And the data which has been released since MAS sent out its survey on Aug 11 has shown further improvement, Mr Cohen said. Even though July's industrial production was largely boosted by pharma output, it showed a pick-up in momentum in other sectors too.

The economists polled by MAS also predicted a 3 per cent contraction in Q3's GDP, and positive growth in Q4 of 1.9 per cent.

Barclays Capital's economist Leong Wai Ho said: 'We now see more signs that the recovery has broadened out to industries other than electronics. Smaller companies are also benefiting from the improved order flow.

'These are signs that the current recovery can be sustained well through the end of this year. Private forecasters are awakening to these realities. We may well experience another external shock, but for now the near-term prognosis is good,' he added.

Mr Leong's GDP forecast has remained unchanged at minus 4 per cent through the past year's turbulence. The 2009 growth forecasts MAS compiled from 21 economists and analysts ranged from minus 5 per cent to minus 1.8 per cent.

Citi economist Kit Wei Zheng, whose forecast of minus 2.7 per cent falls in the higher end of this range, says that he sees more upside yet.

'July proved to be a strong start to the third quarter, and recovery is likely to broaden into the trade-related services,' he said, expressing confidence that full-year growth would beat the median forecast of a 3.6 per cent contraction.

'But, not to sound overconfident, certain risks - such as that of a W-shaped recovery - are still there,' Mr Kit added. Still, he thinks that if it does come, the second dip would be in the latter half of 2010, rather than sooner.

OCBC economist Selena Ling too thinks that 'optimism will probably need to be tempered with a few reality checks'. Even though she considers a sharp second dip unlikely, the recovery ahead will be 'choppy and bumpy'.

'Much hinges on US consumption recovery - because the US consumer still seems to be deleveraging and saving, and how global demand pans out will be seen in the Christmas orders over the next few months,' she said.

The International Monetary Fund's (IMF) country report on Singapore, released on Tuesday, expects an 8 per cent contraction this year, but this was based on meetings with Singapore officials in May and probably excluded the strong Q2 performance.

MAS's survey of forecasters also showed that the economists have upped their estimates of growth for manufacturing - minus 7.1 per cent versus minus 14 per cent back in June - as well as for financial services and construction. But forecasts have been lowered for wholesale trade and retail, and hotels and restaurants.

Private consumption is now expected to shrink a smaller 2.5 per cent, while the slide in non-oil domestic exports is expected to be less severe too at minus 11.5 per cent, the survey results showed.

The median forecast for consumer price index inflation also rose to zero, from the negative 0.5 per cent reported in June's edition.

As for the labour market, estimates for the unemployment rate have also been lowered to 3.8 per cent by year-end, compared to 4.2 per cent in the June survey.

Source: Business Times, 3 Sep 2009

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