(SINGAPORE) The economy is out of the woods, but the recovery won't be spectacular or even smooth sailing, says the Ministry of Trade and Industry.
Unveiling what it calls a cautious but realistic forecast of 3-5 per cent GDP pace for 2010, MTI reckons that growth in the first half of the year could be 'fairly strong' but sees a rather 'more uncertain' outlook for the second half. Still, barring a double dip in the United States, 'we do not expect a return to recessionary conditions in the second half', says MTI permanent secretary Ravi Menon.
And, given sluggish growth in the major economies, neither does MTI expect a strong rebound to pre-crisis levels of growth anytime soon.
The GDP figures released yesterday confirm the end of recession in Singapore in Q3 - which saw the second consecutive quarter of sequential expansion, and the first positive year-on-year growth in four quarters. The Q3 numbers - 14.2 per cent q-o-q and 0.6 per cent y-o-y - have been revised down slightly from the flash figures put out six weeks ago.
While the market consensus is a little more upbeat, the official forecast sees the economy shrinking by between 2 and 2.5 per cent in 2009 - which implies a negative Q4 in sequential terms after two robust quarters. But this does not necessarily spell a return to recessionary conditions, said Mr Menon.
The pullback into the red must be seen in the context of double-digit sequential growth in the preceding two quarters, he pointed out. The surges in Q2 and Q3 reflected 'aggressive restocking' that is not expected to continue, and also came largely from the biomedical sector, he said.
In fact, excluding the biomedical sector, 'the economy is expected to grow modestly in sequential terms in the upper end of our estimate', he added.
The key economy to watch is the US, Mr Menon made clear. MTI's base scenario for Singapore sees sluggish growth in America, but not recession.
But if the US goes into a double dip slump next year, triggered by another round of financial shocks or by further job market woes, 'then all bets are off for the second half' and Singapore would be hard put to achieve even the cautious 3-5 per cent growth forecast in 2010, he said.
'We do not think it's likely to happen,' said Mr Menon of the worst-case scenario for the US.
Unemployment in America, which hit a 26-year high of 10.2 per cent in October, will likely remain weak but is not expected to worsen. And fiscal stimulus still in the pipeline will continue to support private demand, he said.
Indeed, there may well be upside surprises to MTI's conservative view on the US outlook, he said, citing the chance, for instance, that the major economies may roll out further stimulus measures.
But 'we have a bit more sight, (more) visibility, of the first half' for Singapore, he said. 'We think the current momentum should carry us . . . through the first few months into 2010 on pretty strong growth.'
In Q3, recovery here broadened beyond pharmaceuticals to electronics and the services. Next year, trade-related services should also get a boost with exports and imports flowing again - Singapore's total trade is forecast to turn around and grow between 7 and 9 per cent in 2010, on higher oil prices and on improved global demand.
Meanwhile, the Monetary Authority of Singapore has also jacked up significantly its inflation forecast for 2010 to 2.5-3.5 per cent, from 1-2 per cent, on the revised annual values of HDB flats effective in January. But it sees no change in core inflation trends.
MAS also reiterated that it is tracking closely price trends in the property market. 'I'm not sure I'll characterise it as a bubble,' said MAS deputy managing director Ong Chong Tee when pressed on whether there is a risk of 'asset bubbles' here. 'I think it's unclear how much of the (price) increases reflect the underlying improvement in economic sentiment, how much of it is speculative.'
Economists expect the official GDP forecast for 2010 to be revised up eventually - 'significantly over time', said one - and for the MAS to return to a policy of 'modest and gradual currency appreciation' in April. The more bullish forecasts see the economy chalking up 6.5 per cent growth next year.
Source: Business Times, 20 Nov 2009
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