Published August 12, 2008
MTI expects a lingering slowdown, sluggish rebound
Price fears ease but Q2 growth down to 2.1% on pharma swings and electronic weakness
By ANNA TEO, Business Times Singapore
(SINGAPORE) Concern here over price pressures will likely take a back seat to growth risks in the months ahead, as global inflation looks to be peaking but no quick economic rebound is expected anytime soon in the major economies.
A senior Ministry of Trade and Industry (MTI) official yesterday described the Singapore economy - which grew just 2.1 per cent in the second quarter - as being in a 'stretched-U' slowdown, with sluggish growth and probably no pickup for a while.
The Q2 growth - slowest in five quarters - brings GDP growth in the first half to 4.5 per cent, which also happens to be the midpoint of the newly-downgraded 2008 growth forecast of 4-5 per cent. This has been narrowed from an earlier estimate of 4-6 per cent.
With weak external demand, the 2008 forecast for Singapore's non-oil domestic exports (NODX) has also been slashed - by six percentage points. From growing 2-4 per cent this year, NODX are now expected to fall by that range. It would be the first contraction in the key trade indicator since 2001.
But 'this is not looking like a very sharp slowdown', MTI second permanent secretary Ravi Menon said at a media conference on the Q2 economic results. 'So you're not looking at a V-shape kind of situation where there's a sharp plunge and a sharp rebound.'
In other words, there also isn't 'the kind of decisive turnaround that you see in previous business cycles', he added. 'It's probably going to take a bit of time this time around. It looks like this slowdown will continue into 2009.'
Related link:
Click here for Ministry of Trade and Industry's press release
GDP report
The global economic dynamics will remain fluid over the next 12-18 months, Mr Menon reckons, with recovery hinging on the state of global credit and asset markets.
'Credit remains tight; financial institutions have become more risk-averse, weighed down by weak balance sheets which will take some time to repair,' he notes. 'The (US) housing market has continued to decline and probably has some way to go.' As a result, consumer sentiment and domestic demand in the industrial economies are dampened.
Against the preceding Q1, Singapore's GDP fell 6 per cent in Q2 in adjusted, annualised terms. A negative Q3 would spell a technical recession. While MTI does not expect one, Mr Menon said it cannot be ruled out.
'All you need is an industry or sector to swing wildly and that could happen,' he said.
As it is, the Q2 slowdown is due largely to a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter.
If pharma output were excluded, GDP growth in Q2, instead of 2.1 per cent, would possibly have been almost twice as high. DBS Bank economist Irvin Seah has estimated it at 3.6 per cent.
Electronics output was also virtually flat in Q2 in the face of weak global demand. As a result, the manufacturing sector contracted 5.2 per cent in the quarter. If the downturn persists, there would 'probably' be some job losses in manufacturing, Mr Menon said.
MTI expects the electronics industry to remain soft in the second half of 2008. And pharma output is expected to be hit by competition from generic drugs and delays in new product approvals, even if the industry's medium-term outlook is bright. But wholesale trade and the services are 'likely' to remain robust and help shore up economic growth.
And while inflationary pressures have eased, Mr Menon warned that 'we're not yet out of the woods'.
So 'we're in for a rough ride but we should stay above the water', he said, adding that GDP growth in the second half of the year should be 'broadly similar' to the first half. Full-year growth will likely come in within the lower half of the revised forecast, he added.
Most economists here have largely 'priced in' the poor outlook in their forecasts, though a few - such as the United Overseas Bank team - cut their GDP growth forecasts yesterday following the Q2 release.
Even more bearish, Standard Chartered Bank's economists believe a technical recession here is on the cards, and see the Singapore economy growing only 3.5 per cent in 2008. They also expect the Monetary Authority of Singapore to start shifting - from its appreciation stance over the past 10 months - to a neutral bias on the Sing dollar
MTI expects a lingering slowdown, sluggish rebound
Price fears ease but Q2 growth down to 2.1% on pharma swings and electronic weakness
By ANNA TEO, Business Times Singapore
(SINGAPORE) Concern here over price pressures will likely take a back seat to growth risks in the months ahead, as global inflation looks to be peaking but no quick economic rebound is expected anytime soon in the major economies.
A senior Ministry of Trade and Industry (MTI) official yesterday described the Singapore economy - which grew just 2.1 per cent in the second quarter - as being in a 'stretched-U' slowdown, with sluggish growth and probably no pickup for a while.
The Q2 growth - slowest in five quarters - brings GDP growth in the first half to 4.5 per cent, which also happens to be the midpoint of the newly-downgraded 2008 growth forecast of 4-5 per cent. This has been narrowed from an earlier estimate of 4-6 per cent.
With weak external demand, the 2008 forecast for Singapore's non-oil domestic exports (NODX) has also been slashed - by six percentage points. From growing 2-4 per cent this year, NODX are now expected to fall by that range. It would be the first contraction in the key trade indicator since 2001.
But 'this is not looking like a very sharp slowdown', MTI second permanent secretary Ravi Menon said at a media conference on the Q2 economic results. 'So you're not looking at a V-shape kind of situation where there's a sharp plunge and a sharp rebound.'
In other words, there also isn't 'the kind of decisive turnaround that you see in previous business cycles', he added. 'It's probably going to take a bit of time this time around. It looks like this slowdown will continue into 2009.'
Related link:
Click here for Ministry of Trade and Industry's press release
GDP report
The global economic dynamics will remain fluid over the next 12-18 months, Mr Menon reckons, with recovery hinging on the state of global credit and asset markets.
'Credit remains tight; financial institutions have become more risk-averse, weighed down by weak balance sheets which will take some time to repair,' he notes. 'The (US) housing market has continued to decline and probably has some way to go.' As a result, consumer sentiment and domestic demand in the industrial economies are dampened.
Against the preceding Q1, Singapore's GDP fell 6 per cent in Q2 in adjusted, annualised terms. A negative Q3 would spell a technical recession. While MTI does not expect one, Mr Menon said it cannot be ruled out.
'All you need is an industry or sector to swing wildly and that could happen,' he said.
As it is, the Q2 slowdown is due largely to a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter.
If pharma output were excluded, GDP growth in Q2, instead of 2.1 per cent, would possibly have been almost twice as high. DBS Bank economist Irvin Seah has estimated it at 3.6 per cent.
Electronics output was also virtually flat in Q2 in the face of weak global demand. As a result, the manufacturing sector contracted 5.2 per cent in the quarter. If the downturn persists, there would 'probably' be some job losses in manufacturing, Mr Menon said.
MTI expects the electronics industry to remain soft in the second half of 2008. And pharma output is expected to be hit by competition from generic drugs and delays in new product approvals, even if the industry's medium-term outlook is bright. But wholesale trade and the services are 'likely' to remain robust and help shore up economic growth.
And while inflationary pressures have eased, Mr Menon warned that 'we're not yet out of the woods'.
So 'we're in for a rough ride but we should stay above the water', he said, adding that GDP growth in the second half of the year should be 'broadly similar' to the first half. Full-year growth will likely come in within the lower half of the revised forecast, he added.
Most economists here have largely 'priced in' the poor outlook in their forecasts, though a few - such as the United Overseas Bank team - cut their GDP growth forecasts yesterday following the Q2 release.
Even more bearish, Standard Chartered Bank's economists believe a technical recession here is on the cards, and see the Singapore economy growing only 3.5 per cent in 2008. They also expect the Monetary Authority of Singapore to start shifting - from its appreciation stance over the past 10 months - to a neutral bias on the Sing dollar
