TODAY Online : Shape of growth next year

Shape of growth next year
Economists raise forecast to 5.5%, but diverge widely on some sectors' prospects
by Leong Wee Keat 05:55 AM Dec 10, 2009

Singapore - With each new forecast since the recession ran out of wind, Singapore's recovery next year appears to gain firmer footing.

But despite revising their forecast upwards again, economists remain as divided as before about how smooth the path will be.

The latest median projection from 20 economists polled by the Monetary Authority of Singapore pegs economic growth at 5.5 per cent next year, up from an earlier forecast of 4.5 per cent.

The range of their projections, however, runs from a modest 2.9 per cent to robust 7.6 per cent growth.

They cited improvements in the global economic outlook, the stabilisation of developed markets and various government stimulus packages as some reasons for a brighter year ahead.

As for the current quarter, median expectations are for 4.7 per cent growth - bringing the year to a close with the economy contracting just 2 per cent, instead of the 3.6-per-cent shrinkage economists had predicted during the last quarterly survey in September.

"The views are quite convergent that we're past the initial stage of recovery that was fuelled by inventory re-stocking and due to credit coming back on line," said Forecast Singapore economist Vishnu Varathan.

But, with the burden of demand falling on consumers in the second half of next year - as stimulus measures run out - and the economy having to outpace a higher base in that period, he feels the rate of growth will be "tempered" by then.

Indeed, the economists' quarterly forecasts see growth tapering off after the first half.

Where it comes to sectorial prospects, however, levels of optimism differed markedly.

Manufacturing, for instance, drew the sunny projection of 13 per cent growth, but also a gloomy minus-4 per cent forecast.

The outlook for non-oil domestic exports at the same time swung from 2 per cent to 18.4 per cent growth, with much riding on the recovery of the American and regional economies.

While Japan announced its 7.2-trillion yen stimulus package on Tuesday, it remains a question what the spillover effects would be for other countries, said Mr Varathan, whose other worries is that trade protectionism could escalate. Such concerns "could probably explain" the wide-ranging forecasts for the year, he added.

While CIMB-GK Research economist Song Seng Wun puts manufacturing growth at between 7 and 9 per cent next year, this is assuming the pharmaceutical industry matches this year's output, and technology producers recover from a three-year slump.

The construction sector drew even more divergent forecasts - it could contract by 4.2 per cent or grow by 15 per cent, going by economists' projections.

Optimism could derive from the "two big-ticket items", the integrated resorts, which are due for completion next year; while those of a more negative frame of mind "probably expect there is not much to build after the two IRs", said Mr Song. He noted, however, that there were some $15 billion worth of contracts due to be awarded in the next 12 months.

Then there are the wild cards the global economic system might yet spring. The Dubai World debacle and Tuesday's downgrade of Greece's credit ratings were fresh on the minds of economists here.

"The key risk is a blow up in a significant company, bank or country," said HSBC senior economist Robert Prior-Wandesforde. "The exact nature of the risk is very difficult to pin down. All we know is, there is a lot of leverage out there that needs to be paid down, and there may be difficulty in paying the debt."