Weak key export markets will weigh on S'pore, says MAS
FIRST, the good news. Singapore's economy has moved beyond the initial post-crisis bounce of growth and will continue to expand as genuine demand begins to stabilise around the world.
But Singaporeans must prepare for a 'slower and steadier' pace of expansion next year than they are used to, said the Monetary Authority of Singapore (MAS) yesterday.
Even though Asian economies have recovered strongly, many of Singapore's key export markets remain weak. In fact, half of the country's exports go to economies that are expected to grow more slowly than usual next year.
And once governments withdraw their stimulus packages, which have provided a cushion, there could be a period of adjustment before 'normal' private-sector demand rises enough to take over.
This will weigh on Singapore's growth, making it lower than in previous post-recession periods, MAS said in its twice-yearly Macroeconomic Review.
While MAS did not provide any growth projections, its assessment implies that average growth for the next four quarters will come in lower than 4 per cent quarter-on-quarter, the rate of growth after the 2001 downturn.
By comparison, the economy surged unexpectedly by double digits in the second and third quarters this year - by 22 per cent and 14.9 per cent quarter-on-quarter respectively. Average quarterly growth between 2005 and 2007 was about 7.5 per cent.
'It is hard to disagree with the assessment that growth will taper off in the next couple of quarters after the very strong rebound we have seen; the only question is the extent to which it slows,' said Citigroup economist Kit Wei Zheng.
Services will be the key in future growth
'Factory production has rebounded so much further along than exports, so it will take a bit of a breather...as exports catch up.'
The Government will release its official forecast for next year in a few weeks' time, but most private-sector economists are already predicting that full-year growth for next year will come in at between 4 per cent and 6 per cent.
While this looks good at first glance, economists emphasised that it comes from a low base. Yesterday, the International Monetary Fund predicted Singapore will grow 4.3 per cent next year, up from a previous tip of 4.1 per cent.
After this recession, Singapore is likely to concentrate on growing its services sectors, especially 'modern services', such as financial intermediation, business services and information and communications, said MAS.
While manufacturing will remain a key pillar of future growth, services have proved to be more resilient in the downturn and will contribute more to growth next year. In particular, activities that rely on regional demand, such as tourism and transport and financial services, could pick up more quickly.
By contrast, manufacturing will grow at a more moderate pace, and construction is likely to falter next year as mega projects, including the integrated resorts, are completed and there are fewer new projects in the pipeline.
While growth will be slower in this post-crisis period than in past recoveries, inflation will rise more quickly than usual, said MAS. It is predicting that inflation will rise to between 1 per cent and 2 per cent next year, although this does not include any possible revision to the annual values of HDB flats, which are determined by the taxman. HDB prices have soared to record highs in recent months.
MAS also highlighted that the employment market has stabilised, but job creation will be modest next year. Firms cut far fewer jobs in this recession than in previous downturns, which means they may be carrying surplus labour that they can use to meet a rise in demand.
Source: Straits Times, 30 Oct 2009