Bullishness due to economy ‘firing on all cylinders in Q1′
Ahead of next week’s release of flash estimates of the first quarter’s GDP growth, a bit of exuberance seems to have swept over some forecasters, with talk now of 2010 growth exceeding 8 per cent.
DBS Bank economist Irvin Seah yesterday raised his forecast of Singapore’s 2010 gross domestic product growth by one point to 7 per cent on account of an expected robust double-digit Q1 pace.
Advance GDP estimates for Q1 – which the Ministry of Trade and Industry (MTI) will announce next Wednesday morning – will likely show strong 21.7 per cent quarter-on-quarter growth, or 11.3 per cent in year-on- year terms, according to Mr Seah. The surge will be driven largely by capacity expansion in the pharmaceutical industry, a rise in electronics demand as well as continued improvement in services sector growth, he said.
Citigroup’s Kit Wei Zheng has more upbeat forecasts – and even more bullish guesstimates up his sleeve. He reckons that with the economy ‘firing on all cylinders in the first quarter’, Q1 growth likely surged 28 per cent quarter-on-quarter and 14 per cent year-on-year – although Q1 will likely mark the peak of the cycle, as base effects turn less favourable thereafter and restocking momentum fades.
‘But the growth moderation could be gradual, with a double-dip recession not likely,’ he says.
On paper, Citigroup’s forecast of Singapore’s 2010 GDP growth officially remains 6.5 per cent, but Mr Kit believes it ‘could exceed 8 per cent’, with output staying near potential through the year. And that’s even if Q2 sees a marked sequential pullback and growth stays flat in Q3, he says.
He will revise his 2010 forecasts after the Q1 flash estimates are out next week.
Last September, when it wasn’t entirely clear that the recession had run its course, Mr Kit’s Citi colleague, Chua Hak Bin, had already stuck his neck out, saying GDP growth of more than 8 per cent was ‘achievable’ for Singapore in 2010.
In any case, more significantly perhaps, Mr Kit believes GDP levels probably exceeded pre-recession peaks in Q1 – that is, some eight quarters after the previous peak, compared with the previous average of six quarters in earlier recessions.
‘But with the peak-to- trough decline in GDP twice as deep as in past recessions, this implies that the recovery has been much sharper than in past recessions,’ he points out. And this should ‘erase any doubt that this recovery has been V-shaped thus far’.
For other economists, such as Barclays Capital’s Leong Wai Ho, who is looking at 6.5 per cent growth in 2010, ‘concerns on growth quality remain’. Recent growth drivers, he notes, have been the volatile biomedicals and ‘one-time additions to capacity’ – the casino resorts, three vaccine plants, new aerospace facilities and Shell’s petrochemical complex.
The more bullish economists expect the official 2010 growth forecast (which stands at a range of 4.5-6.5 per cent) to be revised up – if not next week, then in May when the final Q1 figures are out.
Meanwhile, the Q1 forecasts colour expectations of the government’s monetary policy stance at its upcoming review next week.
More seem to expect the Monetary Authority of Singapore (MAS) to maintain its neutral stance, given the low core inflation and uncertainties about the second-half outlook.
But Citigroup’s Mr Kit – given his upbeat prognoses – believes ‘the stars are aligned’ for monetary tightening, citing rising inflationary pressures as the output gap closes and grows.
Source: Business Times, 9 Apr 2010
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