Thursday, April 15, 2010

Superlatives greet Q1 GDP numbers

With strong figures from the first quarter's advance estimates, MTI now expects Singapore growth to hit 7-9% this year

(SINGAPORE) Exceptional first-quarter growth and a firmer recovery in the US and Asia have prompted the government to raise its forecast for Singapore's 2010 GDP growth by 2.5 percentage points.

The news yesterday sent the Straits Times Index surging past 3,000 points for the first time since 2008, as private sector economists rushed to upgrade growth forecasts as well.

Fears of a 'double-dip' recession seem to have faded, and the Ministry of Trade and Industry (MTI) now expects 7-9 per cent economic growth this year, up from 4.5-6.5 per cent before.

Advance GDP estimates for Q1 show growth of 13.1 per cent from a year back, beating the market consensus of 11 per cent, and the biggest year-on-year jump in 16 years.

Flash data for Q1 - based on just the first two months of the year - also showed remarkable quarter-on-quarter growth of 32.1 per cent in annualised, seasonally adjusted terms - the highest ever.

Manufacturing led the way, more than doubling output to post annualised growth of 139 per cent quarter on quarter - a sharp reversal from its 29 per cent contraction in Q4 2009. MTI attributed this to robust electronics production, driven by the recovery of global semiconductor chip sales, and a larger-than-expected surge in biomedical output.

Construction activity was flat quarter on quarter but rose 11.3 per cent year on year.

Economists noted the broadening of the recovery into the services sector, which grew 8.4 per cent year on year and 11 per cent quarter on quarter in annualised, adjusted terms.

'While downside risks remain, such as a sovereign debt crisis in Europe or a slowdown due to withdrawal of fiscal measures, these have been outweighed by stronger signs that global economic conditions are improving,' MTI said yesterday. These include firmer private sector demand in the US and solid growth in Asia, supported by buoyant demand for electronic goods and commodities from China, which is expected to announce strong Q1 GDP numbers today.

Similarly optimistic, the Monetary Authority of Singapore, which launched an unprecedented double dose of monetary tightening yesterday, said that the economy 'has now fully recovered the output lost during the recession, and economic activity in a broad range of industries has exceeded its pre-crisis peak'.

With the output gap now positive, risks are tilting away from growth towards inflation, as pressure from rising commodity prices and private road transport costs persist. The government yesterday also raised its 2010 forecast for consumer price index inflation by half a percentage point to 2.5-3.5 per cent.

Anticipating a strong rebound in Q1 GDP, many economists had already raised their full-year growth forecasts. But using superlatives to describe the 'mind-boggling' and 'super normal' Q1 estimates, many made further upgrades yesterday.

Morgan Stanley economists said that the government's new forecast will take the economy back to the '8 per cent average growth which we saw in the last boom cycle'.

MAS said in its statement yesterday that the now 'more entrenched' recovery in local domestic activity is 'likely to be sustained at a relatively high level, even as the growth momentum slows in the coming quarters'.

Most economy watchers concurred. While the manufacturing sector could pull back somewhat in Q2 due to pharma output volatility, gains in services should be broad-based, with tourist spending set to rise and buoyant wage conditions at home, said RBS economist Lim Su Sian.

HSBC economist Robert Prior-Wandesforde, who thinks growth could hit double-digits this year, said that further fiscal action is probable in the second half.

But some are tentative. Standard Chartered economist Alvin Liew, whose revised 2010 growth forecast of 6.5 per cent still falls below the official one, said that 'external demand, while recovering, is likely to be lacklustre'.

'The government's optimistic 2010 outlook also adds to speculation that a general election could be on the cards soon, riding a wave of positive domestic sentiment.'

And sentiment is indeed positive on the ground. Renny Yeo, president of the Singapore Manufacturers Federation, affirmed the strong manufacturing growth seen in Q1's numbers: 'Electronics has improved tremendously and if you talk to the freight forwarders, the picture looks good. Most of our members are confident about business prospects now. Some manufacturers are now worrying about an increase in wages though.'

OCBC economist Selena Ling expects the National Wages Council, which convenes this month, to recommend full restoration of wage cuts and adjustments to pay and bonuses to reflect the upswing.

While the jobs climate is good and wages will rise, the spike in growth will not cause an equivalent spike in employment, said SIM University labour economist Randolph Tan. 'Dramatic growth was possible because fewer lay-offs in the recession allowed companies to harness excess capacity to ramp up production rapidly.'

Source: Business Times, 15 Apr 2010

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