Nov 16, 2012

Singapore - Singapore's economy expected to grow 1.5% in 2012

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SINGAPORE: Singapore's economy is expected to grow by around 1.5 per cent in 2012 and 1.0 per cent to 3.0 per cent in 2013.

Early estimates show that on a year-on-year basis, the economy grew by 0.3 per cent in the third quarter of 2012, following the 2.5 per cent increase in the earlier quarter.

On a quarter-on-quarter basis, the economy contracted by 5.9 per cent, after growing by 0.5 per cent in the previous quarter.

Permanent Secretary at the Trade and Industry Ministry Ow Foong Pheng said: "Growth may come in slighter lower than forecast if the weakness in the externally- oriented sectors persists into the final quarter of 2012."

The Trade and Industry Ministry said Singapore's economic growth is expected to remain subdued for the rest of 2012 as sluggish external demand will likely weigh down the electronics manufacturing cluster.

While the construction sector could provide modest growth support to the overall economy, it said the electronics manufacturing cluster would continue to be weighed down by weak external demand.

It also said warned that the 1.5 per cent growth forecast for 2012 may even emerge slightly lower, if the weakness in the externally-oriented sectors persists into the final quarter of 2012.

Growth took a hit mainly from the externally-oriented sectors such as manufacturing and wholesale trade.

On a quarter-on-quarter basis, the manufacturing sector contracted by 9.6 per cent with a decline in the electronics manufacturing cluster.

On a year-on-year basis, the manufacturing sector declined by 0.8 per cent, compared to the 4.6 per cent expansion in the previous quarter.

The construction sector expanded by 7.7 per cent on-year compared to 12.3 per cent in previous quarter, while the wholesale & retail trade sector contracted by 0.7 per cent on-year, after a 0.4 per cent decline in the second quarter.

On year-on-year basis, the finance & insurance sector declined by 2.7 per cent compared to 0.3 per cent increase in preceding quarter.

The year-on-year growth of the accommodation & food services sector moderated to 2.0 per cent, from 2.9 per cent in the preceding quarter.

MTI said "the growth outlook for the Singapore economy remains cautiously positive" due to the expected sluggishness in the global economy with advanced economies likely to be restrained in growth.

"Growth in externally-oriented clusters such as electronics manufacturing and wholesale trade could remain subdued.

"Nevertheless, backed by a healthy pipeline of projects, growth in specific clusters, such as transport engineering, as well as the construction sector, could provide support to the economy in 2013" said the MTI statement.

It did however caution that the global economic outlook is still uncertain with concerns over the extent of the fiscal cutback in the US and potential escalation of the ongoing debt crisis in the Eurozone.

Should any of these risks materialise said MTI, Singapore's economic growth could come in lower than expected.

Mr Ow said: "sluggish growth is really due to the sluggish global macro environment.

"If it's really driven by the policy measures by the labour side, it should hit the domestic sectors more, but on the other hand we actually see positive… So we don't think it's actually due to the tightening of labour policies."

Vishnu Varathan, market economist at Mizuho Corporate Bank, however said that the first three quarters of 2012 experienced a GDP growth of 1.4 per cent.

"So implicitly the MTI is saying they expect a modest acceleration in growth from here and that should lift the full year figure to about 1.5 per cent," he said, meaning that Singapore is likely to avert a technical recession in the fourth quarter of the year.

While domestic restructuring policies such as restrictions on the hiring of foreign labour have contributed to inflationary pressures, the Monetary Authority of Singapore (MAS) said that the main drivers of headline inflation were in fact accommodation and transport costs.

"A strong Sing dollar as you know helps to dampen imported inflation… But clearly, the domestic price pressures cannot just be addressed by exchange rates alone... We also look at macro-prudential tools to address specific sector price pressures like (in) the housing market and so on," said Ong Chong Tee, deputy managing director of MAS.

"For next year, we are looking at 3.5 per cent to 4.5 per cent for headline CPI (Consumer Price Index) - about slightly more than half of that comes from the two components of car prices and the imputed rentals on owner-occupied (accommodation). Of the remaining, about one-fifth would come from services items which would include some of the domestic components like wages. Another one-fifth or so will come from commodity-related items because there are some commodity prices which we think will have seen some weather-related shocks," he said.

- CNA/fa/sf/jc

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