Monday, May 18, 2009

Economists not yet revising forecasts

Still no clear signs for second half despite some green shoots, they say

GREEN shoots may have become more evident in the past few days, but they are not enough to convince economists to revise their growth forecasts for Singapore - not yet, at least.

Everyone agrees that the economy will contract this year. It is the size of the contraction that is debatable.

Economists' estimates range from -4 per cent at Barclays to -8 per cent at Action Economics, while the International Monetary Fund believes it could decline by as much as 10 per cent.

The Government's estimate is that gross domestic product will shrink by 6 per cent to 9 per cent.
'Our forecast has already factored in a sequential quarter-on-quarter growth for this year,' said OCBC economist Selena Ling.

'Notwithstanding the fact that we see some improvement, this is offset by the service sector slowing faster than we expected... We think rising unemployment numbers will continue to pressure growth.'
Economists generally agree that the market bottomed out in the first quarter and that the worst is over. They are, however, unwilling to speculate beyond that.

CIMB-GK economist Song Seng Wun said: 'I think businesses in general have either very little visibility or no visibility beyond June.

'We know that the second-quarter numbers for Singapore will see a bit of a rebound, but it's a bit dangerous to extrapolate on a straight line.

'With the recession taking hold, businesses will be affected, as consumers gradually find that things are tougher on the employment front and income front.'

Mr Song said he saw some improvement, but he questioned whether the pace of the recovery would be sustained in the second half.

Trade numbers for last month will be announced today, while official figures for first-quarter growth will be out on Thursday.

Initial estimates - based largely on the first two months of the year - indicate a sharp drop in GDP of 11.5 per cent from a year earlier.

United Overseas Bank economist Chow Penn Nee felt that the actual figures would 'probably come out quite similar' to the advance estimate of 11.5 per cent.

'From past years' experience, it doesn't really deviate much from the advance estimates. So then, we'll have to wait for the second quarter and see how it picks up,' said Ms Chow.

Only one economist - Citigroup's Kit Wei Zheng - has revised his outlook upwards. He said last Tuesday that he was looking at a 5 per cent contraction for the year, an improvement from his previous estimate of -6.4 per cent.

His forecast falls outside the 6 per cent to 9 per cent estimate given by the Government but finds favour with Barclays economist Leong Wai Ho, who predicts a relatively mild slump of 4 per cent.
'We've been looking around the region,' Mr Leong said. 'The historical relationships between North Asia and Singapore show electronics-led industrial rebounds, which we have been seeing in North Asia for the past two months.

'These should trickle down to smaller manufacturing centres like Singapore. So, we believe that in the coming quarters, growth will actually pick up.'

Economists need to see certain signs before they will revise their forecasts.

'I think there are a few leading indicators,' said OCBC's Ms Ling.

'We are very closely watching what's happening in the United States and China. The US is a key economy... If the US sees a turnaround, I expect the other Group of Seven economies will also see a pick-up some time in the future.'

Housing sales in China leapt by 35.4 per cent in the first four months of the year, while manufacturing expanded last month.

Economist David Cohen from Action Economics said exports were a key indicator.

'Export numbers certainly would need to start picking up a little bit, supporting the manufacturing production, which remains quite depressed,' he said.

'What we've seen so far is a bottoming out rather than any sharp rebound. Yet... there's no escaping that we will see a sharp contraction for this year's GDP.'

Source: Straits Times, 18 May 2009

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