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Private sector economists expect negative or flat growth for Singapore’s economy next year, due to poor external conditions.

Many have been revising their forecasts in recent months, and they said risks remain on the downside.

Volatile stock markets, a business environment fraught with fear, and poor consumer demand across the world have contributed to poorer growth for Singapore.

With conditions unlikely to improve in the near term, most private sector economists are downgrading their growth forecasts for Singapore in the year ahead.

“The external environment is extremely challenging. What you’ve had in the past several weeks is a rapid shift in both market consensus as well as government expectations on where growth is going to be,” said Tai Hui, regional economic research head (Southeast Asia) at Standard Chartered Bank.

The government is warning that Singapore could see negative growth in 2009 - a view echoed by some economists.

Citigroup was among the first, in mid-October, to forecast a 1.2 per cent contraction for Singapore next year. Morgan Stanley and UBS followed with an even more bearish outlook - a decline of at least 2 per cent.

Others like Standard Chartered and DBS prefer to remain positive, with a growth forecast of just above 1 per cent for 2009, but they warned that risks are on the downside.

DBS said there is a 40 to 50 per cent chance that it may downgrade its forecast in the next few months.

On the whole, most economists agree that Singapore’s economy should hit bottom around mid-2009.

“Recessions don’t go on forever and the normal recovery mechanism such as the easing in commodity prices, oil prices have come down from their highs a few months ago, that’s already providing some relief to consumers and businesses,” said David Cohen, director of Asian Economic Forecasting at Action Economics.

“What you need to see is a recovery of the US economy or stabilisation at the very least. The housing market is crucial because that’s a significant part of US household wealth,” said Tai.

According to some forecasts, a recovery could begin by 2010, which should see the Singapore economy growing by about 4 to 5 per cent for the year.

The Singapore government expects the country’s economy to grow by about 3 per cent this year, down from 7.7 per cent a year ago. - CNA /ls

Source : Channel NewsAsia - 18 Nov 2008

But Singapore will be among first to rebound, says Morgan Stanley Asia chairman

SINGAPORE is likely to be one of the first in Asia to recover from the current global economic slowdown, but don’t expect the world to rebound until 2010 or 2011.

This was the prognosis of Mr Stephen Roach, chairman of Morgan Stanley Asia, during the bank’s annual conference here. “If the global economy surprises on the upside, Singapore will be one of the first economies in the region to benefit from that,” he said.

“But I think it’s hard to be too optimistic right now on global economy prospects over the next few years.”

This, said Mr Roach, “is t:he worst global crisis that I’ve seen in my now 36-year career as a professional economist”.

With the United States economy likely mired in a long, albeit moderate, recession involving “multi-year adjustment of US consumer behavior”, a global recovery would be gradual and “anemic”, he said.

“The recovery in the global economy is going to be wok-shaped; a big wide bottom and then a very gradual upslope in 2010 or 2011,” said Mr Roach.:

But he felt that Asia would emerge from the crisis “better than the rest of the world and I think the markets are overdoing the gloom with respect to Asia”.

China’s aggressive stimulus package will likely ease the pace of slowing economic growth for that country, he said.

Mr Roach also aired his views on US President-elect Barack Obama, who takes office in January.

He said he was hopeful that the new leader’s trade policy would differ from his campaign statements, in that Mr Obama “reaffirms his support for globalisation, says no to China-bashing, says no to other types of trade frictions that continue to resonate a lot in the halls of the US Congress”.

“If he can’t resist that - and there is certainly a risk of that in this environment - then you do have to worry about the possibility of anti-China trade legislation being introduced,” he added.

Source : Today - 14 Nov 2008

Economies such as Singapore and Hong Kong have benefited from the global economic boom in the last five years. But their open and exposed economies mean they are also vulnerable to recessionary pressures as the world economy slows down.

However, Morgan Stanley said it is not all doom and gloom for Singapore. Experts said the country would be among the first to bounce back once a global recovery takes place.

Stephen Roach, chairman, Morgan Stanley Asia, said: “If the global economy surprises on the upside, Singapore will be one of the first economies in the region to benefit from that. But I think it is hard to be too optimistic right now on global economy prospects over the next few years.”

Morgan Stanley, too, is feeling the pinch of the global slowdown. It announced on Thursday that it would be retrenching 10 per cent of its staff in the institutional securities unit and 9 per cent in asset management.

The global financial services firm said less of these cuts are likely to come from Asia. In fact, Morgan Stanley remains bullish on the prospects of Asian growth once the crisis is over and this bodes well for markets like Singapore.

Roach said: “The main challenges are to consider the options that (the) Singaporean government must consider to counter very powerful external headwinds around the world.

“The good news is that Singapore is more integrated with the rest of Asia than it is with Europe, South America and North America. The Asian region itself is likely to fair better than the rest of the world in this global downturn.”

Morgan Stanley downgraded its growth forecast for Asian countries earlier this week, but it expects a sharp recovery in Asia in the next few years on the back of solid economic fundamentals in the region.

Source : Channel NewsAsia - 13 Nov 2008

Big drop from its earlier tip of 0.2% growth; global forecast also cut

SINGAPORE’S economy may shrink 2 per cent next year as it suffers from a worse-than-expected global recession, Morgan Stanley predicted yesterday.

This estimate is a drastic cut from the investment bank’s previous tip of a 0.2 per cent expansion, and marks the most bearish view so far for growth next year.

Full-year growth has not dipped below zero since the dot.com bust in 2001, when the economy shrank 2.4 per cent.

Morgan Stanley also slashed its projection for global growth - from 2.5 per cent to 1.7 per cent - and lowered growth forecasts for several countries.

‘The vicious loop of rising credit defaults, shrinking risk capital pool, slowing growth and rising unemployment is unveiling the possibility of deeper-than-expected recession,’ it said.

On the bright side, the consensus at the three-day Morgan Stanley Asia Pacific Summit, which opened at the Mandarin Oriental yesterday, was that this slowdown is not going to turn into the second Great Depression.

‘This time around, policymakers reacted at a much earlier stage,’ said Morgan Stanley’s co-head of global economics, Mr Joachim Fels, a member of a panel examining the global outlook.

‘We’ve already seen very aggressive responses from policymakers…no bank is allowed to fail, unlike in the 1930s.’

Mr Fels said he expects the slowdown in the United States and Europe to bottom out somewhere in the middle of next year, thanks to the coordinated monetary policy action and a massive fiscal package expected when Mr Barack Obama assumes office as US president.

‘Mr Obama’s fiscal stimulus will probably kick in in the first half of next year.’

The effects of policy actions so far have been blocked somewhat by the paralysed financial system, but now that governments are offering more liquidity to the banking system, they should soon filter through to the real economy, he added.

But the recovery expected in 2010 is likely to be a ’sub-par’ and ‘tepid’ one - payback for the large fiscal injections now.

‘Consumers will offset increased public debt by saving more,’ said Mr Fels. ‘There will be much slower economic growth than we have been used to.’

The crisis will also take its toll on Asia as the cost of capital spikes and export demand plunges with the world’s major developed economies in a recession.

Likely to be worst hit are South Korea, Australia, Indonesia and India, said Mr Chetan Ahya, a managing director and India and Asean economist at Morgan Stanley. These four economies are running current account deficits and have seen loans grow strongly relative to their economies, making the credit crunch more painful for them, he explained.

In a separate event at the summit, Harvard University professor Niall Ferguson also said this crisis is ‘not the Great Depression, just a big recession’.

‘I don’t think we will see unemployment in the US reach 25 per cent and output collapse 30 per cent,’ he said. ‘We have learnt that we cannot let generalised banking failures happen.’

Prof Ferguson also argued that the US would not lose its place as the world’s economic superpower despite this crisis being ‘made in America’, a reference to sub-prime mortgages that went bad.

The US has the fiscal power to ‘throw US$2 trillion (S$3 trillion) at the problem’ while Europe is suffering more. Also, the US has a symbiotic relationship with China - one the spender, the other the lender - that will weather the crisis.

Source : Straits Times - 12 Nov 2008

Economists expect Singapore’s government to increase its spending by up to S$10 billion next year.

Senior Minister Goh Chok Tong said on Thursday that the next budget will be an “expansionary” one, which means the government will be spending more and collecting less.

With corporate earnings hit by the economic slowdown, analysts said on Friday that the private sector will scale back significantly on spending and investment.

Song Seng Wun, CEO & regional economist, CIMB-GK Research, said: “Financing is not a problem. Since the new term, the government has been able to record fairly substantial surpluses and with the change in constitution, it allows them to dip into reserves. They do have a larger war chest to deal with this downturn.”

One way to pump-prime the economy is to keep infrastructure projects flowing.

Market watchers said the government is likely to start public sector projects which were deferred earlier. About S$4.7 billion worth of projects were held back till 2010 to ease pressure on the construction sector.

The government is also expected to inject more funds into the research and bio-medical sector, which is likely to create more jobs.

Analysts said the government could also help individuals and companies by offering tax incentives. They do not rule out a reduction in the Goods and Services Tax (GST), which will go some way to help lower the cost of living.

Older workers, in particular, may be given an extra lift through the Workfare Bonus Scheme - a programme to encourage low-wage workers to take on jobs.

Heng Chee How, deputy secretary-general of NTUC, said: “In a recession, it (workfare bonus) is something that you could look at because cash flow is something that workers are also concerned about.”

Analysts said needy families are also likely to get more assistance through a range of rental and utility rebates.

On the whole, they expect many of the potential budgetary measures to be one-offs, designed to help cushion the impact of the downturn.

Source : Channel NewsAsia - 7 Nov 2008