MTI raises 2010 growth forecast to 4.5% to 6.5%

A STRONGER than expected global economic recovery means Singapore's economy is likely to grow significantly more this year than earlier predicted.

The Ministry of Trade and Industry (MTI) yesterday hiked its growth forecast for this year to between 4.5 per cent and 6.5 per cent - up from 3 per cent to 5 per cent.

This makes it more in line with what private sector economists are predicting.

The revision comes after the economy proved more resilient than expected in last year's recession. It shrank by only 2 per cent, less than the 2.1 per cent contraction earlier estimated and the 2.4 per cent decline in the 2001 recession.

But while the outlook has improved considerably for the first six months of this year, risks still remain in the second half, MTI Permanent Secretary Ravi Menon said yesterday.

This 'tale of two halves' means that Singapore's economy will perform strongly until the middle of the year, followed by some pullback in the latter half.

'The green shoots of recovery that we saw six months ago have grown stronger and taller and taken deeper root, and will deliver a fairly strong first half for 2010,' Mr Menon told reporters.

These encouraging factors include a jump in world trade flows and a surprisingly strong improvement in the American economy. It also helps that Asia is experiencing a robust recovery led by China, which is expected to grow at least 9 per cent this year, giving a helping hand to its neighbours along the way.

Singapore's exports, for example, are forecast to grow by 10 per cent to 12 per cent this year after shrinking 10.6 per cent last year, said MTI yesterday.

Several industries in Singapore will also benefit from rebounding global demand, including manufacturing, trade-related sectors, electronics, biomedicals, chemicals and tourism, Mr Menon said.

But going into the second half of the year, 'clouds remain on the horizon, and they will cast a shadow over the outlook for the year', he added.

Risks include demand from US consumers and firms faltering and financial market weaknesses emerging once government stimulus wears off later this year.

Asset price inflation in China and other Asian countries is also a potential problem, as is the rising risk that European nations such as Greece and Spain might default on debt, said Mr Menon.

OCBC economist Selena Ling said the performance of the economy in the second half of the year will be more telling as to the sustainability of this recovery.

'We cannot ignore that the strong first-half growth numbers that lie ahead will be mostly attributable to the low base last year as well as very accommodative fiscal and monetary policy settings.'

Many of the growth drivers for Singapore's economy this year still depend heavily on the worldwide economic recovery, said Standard Chartered economist Alvin Liew.

But while some volatility is to be expected on the way up, he believes Singapore will recover from the financial crisis with growth of 5.1 per cent this year.

Citigroup economist Kit Wei Zheng, who is anticipating 6.5 per cent growth this year, said the Government's raised forecast was no surprise as its previous tip was 'conservative' given the recovery's strong momentum.

The economy performed better in the fourth quarter of last year than earlier thought, MTI said yesterday. It expanded by 4 per cent compared to a year earlier, higher than the 3.5 per cent estimate.

This stemmed from a last-minute surge in December in the manufacturing and services sectors, which together make up the bulk of the economy.

For the whole year, inflation is expected to come in at 2 per cent to 3 per cent, a shade lower than the previous forecast of 2.5 per cent to 3.5 per cent. This is due to a change in the way inflation is calculated.

As for how Singapore's monetary policy will be adjusted in light of the stronger recovery and returning inflation, Monetary Authority of Singapore (MAS) deputy managing director Ong Chong Tee remained tight-lipped yesterday, saying only that the current stance is appropriate.

This has left economists divided over whether the Singapore dollar, now in a zero appreciation zone, will resume its previous path of gradual appreciation in April or in October: when MAS issues its monetary policy statements.

Source: Straits Times, 20 Feb 2010