SGHOUSING.COM 新加坡房地产网

Worries not just restricted to manufacturing

Singapore’s longer-term prospects may possibly be highly promising, but going by the musings of some economists in the past week, the immediate outlook’s none too bright at all.

Look a little deeper beyond the poor Q2 GDP figures released last Thursday, and ‘it appears not all is well in the city-state’, says IDEAglobal in a report.

Apart from the anaemic manufacturing sector, hit by pharmaceutical production woes, the rest of the economy is also ’slowly but surely grinding to a slowdown’, Morgan Stanley’s economists note.

Citigroup - which has cut its GDP growth forecasts for Singapore to 4.1 and 3.9 per cent for 2008 and 2009, respectively - sees a prolonged slump in electronics, slowdown in services and a possible moderation in construction as likely the main headwinds to hit growth.

Flash estimates show the economy grew just 1.9 per cent in Q2, the slowest pace in five years. Against the preceding Q1, GDP fell 6.6 per cent in adjusted terms.

While some economists believe the weaknesses are largely confined to the manufacturing sector, specifically the volatile pharmaceutical industry, and that the economy is otherwise resilient, others are more bearish. Previously, strong growth in the services and construction sectors had offset manufacturing weakness. But this ‘no longer appears to be the case’ in the latest figures, according to IDEAglobal, warning that ‘another stumble’ could ensue in the quarters ahead as repercussions of the global financial and economic problems spread through the economy. The external environment simply does not support strong growth here this year, it says.

Domestically, a combination of high base effects - the economy grew 7.7 per cent last year - and soaring raw material and other input prices, as well as weak sentiment, have dampened the outlook for property developers, and is likely to slow, if not derail, the recent construction boom.

Even the more optimistic, who reckon the construction sector could stay ‘fairly insulated’ in 2008 given the investment commitments, also expect this growth support to wane in 2009 as the property market has already softened substantially.

Services growth remains healthy enough, but high hopes are pinned on a big boost from the F1 festivities in September. But that remains to be seen as ‘many of the hotels in the track area (are) still holding large numbers of empty rooms’, IDEAglobal says.

While he thinks a technical recession is unlikely, Citigroup’s Kit Wei Zheng expects GDP growth to remain below 2 per cent in Q3, barring a rebound in biomedicals, before jumping to 5-6 per cent in Q4.

While base effects and the biomedical swings are at play in Singapore’s 2008 quarterly growth figures, a gradual slowdown is setting in through the rest of the economy, he says. Citi’s in-house composite tech leading indicator continues to point south, suggesting that further cyclical weakness in electronics demand is likely over the next couple of quarters, he adds.

And the cyclical slump could yet accelerate the restructuring in the consumer electronics industry - which spells more plant relocation and a further drag on electronic exports, Mr Kit notes. The strengthening of the Singapore dollar over the past nine months - to fight inflation - would also have squeezed exporters’ profit margins and possibly erode their competitive edge.

Citi’s estimates suggest that the impact of monetary tightening since October 2007 is likely to be felt ‘most intensely’ from around April this year.

But, all said, Citi expects a relatively shallow slowdown, unlike the 1997 and 2001 recessions that resulted in massive layoffs.

The jobless rate is likely to rise to 2.6 per cent by 2009, and some 170,000 jobs will be created this year, it forecasts, down from 235,000 in 2007. And, despite the slowdown, upside inflation risks remain.

Source : Business Times - 17 Jul 2008