Upbeat full-year call partly assumes Q2 growth of more than 16%
(SINGAPORE) Just to leave no doubt about where economic sentiment is headed here, forecasts of Singapore's 2010 growth have just hit a new high of 12.5 per cent.
One month after a half-point upgrade to 9.5 per cent, Citigroup economist Kit Wei Zheng yesterday added three full points to his full-year GDP growth forecast on the back of 'better historical data', with room for upside risks to the estimate.
His 12.5 per cent forecast assumes second-quarter growth of more than 16 per cent, riding on an electronics and biomedical manufacturing surge, and after Q1's 15.5 per cent pace, to be followed by a pull-back in sequential momentum in the second half. The slowdown would partly be a technical pull-back, but it also reflects risks from the euro area crisis, Mr Kit said.
'If instead, we see flat sequential growth in the second half, full-year GDP growth could rise to 14-15 per cent,' he added.
In mid-May, market forecasts of Singapore's 2010 GDP growth jumped to a 9 per cent median, with the most bullish at 12 per cent. Since then, strong April exports and industrial output here - along with equally robust trade figures in the region - have probably hoisted the market consensus, and a dip in Singapore's May exports pace has not dimmed expectations of a double-digit GDP figure year-round. The official forecast for 2010 growth, meanwhile, remains at 7-9 per cent, with a possible revision early next month when the Q2 flash GDP estimates are released.
While Singapore's GDP forecasts have trended up in the past six months, economic sentiment elsewhere, especially in the major economies, seems to have weakened of late, even though recovery prospects remain intact.
Fund managers polled early this month by Bank of America Merrill Lynch Research reported a significant fall in confidence about global economic growth and the ability of corporations to improve profits.
The latest monthly survey shows only a net 24 per cent of respondents believing the world economy will strengthen in the next 12 months, down from 42 per cent in May and 61 per cent in April. Similar concerns were voiced over corporate profits: A net 28 per cent of the fund managers believe profits will improve in the coming 12 months, compared with 47 per cent in May and 67 per cent in April.
The doubts and fears weren't just about Europe. Apparently, confidence in China has fallen to its lowest level since January 2009, with a net 27 per cent of the fund managers polled expecting China's economy to weaken in the coming 12 months - a sharp turnaround from April when a net 21 per cent predicted an improving economy.
And even though US indicators point to continued growth, with job increases over the past four months, The Conference Board says that the US growth momentum will not be sustained beyond Q2, citing 'pent up effects from the recession, in particular on the consumer and the investment side'.
A recent post on Roubini Global Economics also notes that leading indicators are pointing to a slowdown globally, but not a double-dip recession.
'Economic musings about a strong V-shape recovery are becoming more and more sporadic; downward revisions to growth and volatility in the markets are the flavours of the day,' the analysis said.
To be sure, even bullish economists in Singapore, such as Citigroup's Mr Kit, have been mindful of the external risks.
In his latest GDP upgrade, Mr Kit cites not only risks from a sharp slowdown in Europe via the trade channels, but also the impact of a potential rise in global short-term interest rates, 'even before the (US) Fed hikes'. At home, rising inflation could well prompt another round of monetary tightening in October, he says.
Singapore's composite leading index actually hit a new high in Q1 - but it is no indicator of trends beyond perhaps the next quarter or two.
Source: Business Times, 22 Jun 2010