Economists predict 2% GDP contraction for 2009

Biomedical slump expected to dampen growth in Q4

(SINGAPORE) Economists expect stronger year-on- year (yoy) growth for the final quarter of 2009, although a slump in biomedical output could trigger a quarterly contraction.

The government will announce the Q4 GDP advance estimate next Monday. But Prime Minister Lee Hsien Loong is expected to give an indication of Singapore's 2009 economic performance and the outlook for 2010 in his annual New Year's Eve address today.

The median forecast of private sector economists polled by Reuters is for a Q4 seasonally adjusted, annualised 0.8 per cent contraction compared with Q3. Compared with Q4 last year, the median forecast is for 4.7 per cent growth.

For the full year, the economists' median forecast is a 2 per cent GDP contraction - the first since 2001. But this is at the upper end of the official government forecast, revised several times to the current 2-2.5 per cent contraction.

In Q3, GDP grew 14.2 per cent quarter-on-quarter (qoq) and 0.6 per cent yoy. 'After two surging quarters, the sequential pace of GDP expansion is unlikely to be sustained in Q4,' said Standard Chartered economist Alvin Liew. His estimate of a 15.1 per cent qoq contraction in Q4 GDP is the most bearish among those surveyed.

A key dampener is the blow biomedical output dealt to industrial production in October and November. Q4 forecasts from those polled range widely from minus 15.1 per cent to positive 2 per cent qoq, and 1.2 to 5.2 per cent yoy, possibly because some revised their numbers after news of the fall in November's factory output, while others had not.

But a recovery in manufacturing activity is still under way. Excluding biomedical output, manufacturing in October and November grew 5.7 per cent yoy, led by double-digit growth in electronics output.

'This reverses the pattern from previous quarters, where outsize jumps in biomedicals exaggerated the extent of the manufacturing or GDP jump,' said Citi economist Kit Wei Zheng. He expects Q4 GDP to contract 11.5 per cent qoq and grow 2.4 per cent yoy.

Other sectors of the economy are also expected to cushion Q4's decline in manufacturing.

Mr Kit expects 'decent though more modest construction growth' in Q4, supported by infrastructure projects like the Marina Coastal Expressway and the Circle Line. 'Final- stage construction of the two IRs (integrated resorts) also likely helped to sustain construction activity, alongside activity in the private residential market.'

David Cohen, director of Action Economics, reckons growth in services will balance out a fall in manufacturing. He expects Q4 GDP to remain unchanged from that in Q3, after seasonal adjustments.

Indicators of growth in the services sector include an 8.4 per cent spike in visitor arrivals in November and rising hotel occupancy rates. Trade-related services are also gaining momentum, going by the increased number of flights through Changi Airport, the volume of sea cargo handled and container throughput, Mr Kit noted.

Source: Business Times, 31 Dec 2009