Economists raise growth forecast to 9%

Optimism stems from manufacturing boom, despite Europe woes

EUROPE'S debt crisis may be roiling global markets, but economists are still expecting Singapore's growth this year to come in at the top end of the Government's forecast - or even higher.

They predict the economy will expand 9 per cent this year, a significant hike over their median forecast of 6.5 per cent growth three months ago, according to a Monetary Authority of Singapore (MAS) poll released yesterday.

A number of economists have even bumped up their growth forecasts for this year to over 10 per cent, outstripping the Government's official forecast of 7 per cent to 9 per cent growth.

The reason: an unexpectedly strong boom in manufacturing and exports. This has given the economy such a stellar start this year that even a slowdown in the second half is unlikely to stop Singapore's growth from hitting the double digits for the full year, they said.

'The simple mathematics of the numbers suggests that it's quite tough to fall below 10 per cent growth for this year,' said CIMB-GK economist Song Seng Wun, who weighs in at the most optimistic end of the spectrum with a growth tip of 12 per cent.

Singapore's economy logged record economic growth of 15.5 per cent in the first quarter and saw a 51 per cent jump in manufacturing output in April, the biggest increase on record.

The better-than-expected April data had not been available when the MAS conducted its latest survey of professional forecasters on May 20. But Europe's debt woes were already entrenched by then, with Greece's inability to pay its debts erupting into a full-blown crisis about a month earlier.

Even without the upbeat April data, the 19 private sector economists polled in the MAS survey had, on average, expected the economy to grow by 9.4 per cent in the second quarter, up from the 6.3 per cent they predicted in the previous survey.

Now, economists such as Mr Irvin Seah of DBS Bank are projecting double-digit growth for the second quarter, which 'would have a very strong lift on full-year growth numbers'.

'The April manufacturing numbers have changed the whole dynamics of second-quarter growth, and double-digit growth for the full year is not far-fetched at all,' said Mr Seah, who this week upgraded his full-year growth forecast to 10.3 per cent.

Virtually all the key sectors of Singapore's economy - from manufacturing and exports to financial services and construction - will do better than previously thought, economists said in the MAS survey. They expect manufacturing to grow 16.7 per cent this year, up from an earlier projection of 9.7 per cent. Exports are now predicted to expand by 18 per cent, financial services by 9 per cent, and wholesale and retail trade by 13.3 per cent.

But the outlook has soured slightly for hotels and restaurants, with economists expecting 8.2 per cent growth this year instead of 8.5 per cent. But concerns about Europe are still weighing on some economists' minds, as are worries that growth in the United States is starting to slow. Jobs data from the US for last month was weaker than expected, raising fears of a tepid recovery.

'I don't think it's a double-dip or anything, but it's a less rosy picture,' said United Overseas Bank economist Chow Penn Nee, who plans this month to raise her current growth tip of 7.5 per cent to between 8.5 per cent and 9 per cent, which would still be near the lower end of forecasts.

'We're factoring in a slowdown in the second and fourth quarters, in quarter-on-quarter terms, in light of the euro zone problems,' she said. 'We expect some weakness there, and don't want to be overly optimistic.'

Mr David Cohen of Action Economics is sticking to his projection of 10.5 per cent growth this year. 'Certainly we're a little more nervous than before, but we still think that the most likely scenario is that Singapore's growth this year can exceed 10 per cent,' he said.

He highlighted unconfirmed media reports yesterday that said China's exports grew at a much faster than expected pace last month, 'a nice reminder that there's still good news out there'. Japan, Korea and Taiwan also recently reported robust economic data.

For next year, economists are keeping their projection of 5.5 per cent economic growth and 2.5 per cent inflation, they said in the MAS survey.

Singapore's inflation for this year is projected at 2.8 per cent, a slight increase over the previous 2.7 per cent prediction, according to the MAS survey. Economists did not change their forecast of a 2 per cent unemployment rate.

But they now expect the Singapore dollar to weaken more against the US dollar than previously thought. By year end, the Singdollar will be $1.356 to the greenback, from the $1.35 tip in the last survey, they said. The Singdollar was trading at around $1.41 against the greenback yesterday.

Source: Straits Times, 10 Jun 2010