http://www.businesstimes.com.sg/sub/...51595,00.html?

Published August 11, 2011

Diverging views on Singapore's outlook


AS forecasts go and given the global uncertainties of the day, the government's decision to cut its estimate of Singapore's 2011 economic growth to 5-6 per cent (at the lower half of its earlier projection) comes as no surprise. But what may perhaps raise a few eyebrows is that with the new official forecast, the economy watchers at the Ministry of Trade and Industry (MTI) and Monetary Authority of Singapore (MAS) - who are normally somewhat more conservative than market economists - seem now to be more upbeat about Singapore's near-term growth prospects than the private sector.

While acknowledging the palpable risks of a technical recession in the second half of the year, MTI's baseline 5-6 per cent growth forecast does not incorporate two quarters of sequential GDP decline - which is something most market economists expect to see by the end of the current third quarter, with GDP having already shrunk 6.5 per cent quarter-on-quarter in Q2. Indeed, MTI said it 'expects Singapore's near-term growth prospects to hold up at this point', despite the heightened uncertainties, market gyrations and turn in sentiment of late; it cited factors that would support a modest economic pick-up in the near term, including sustained strength in regional demand and at home, recovery in biomedical manufacturing, and continued robust growth in core financial services and visitor inflows. In MTI's central scenario, even if external weakness persists, the economy should still grow 5 per cent, the ministry reckons.

But the downside risks - centred on America and Europe - that MTI sees materialising only in its bad-case scenario figure in many a private sector economist's baseline forecasts. At least two, in fact, are looking at growth below 5 per cent, with one declaring that growth in the second half of 2011 'might not bounce back as quickly as expected', given the protracted economic weakness in the US and EU. Even then, the recession will not be prolonged but a two-quarter aberration, with the economy still expected to grow at least 4.5 per cent or so - and without a surge in the unemployment rate, going by the last time Singapore suffered a recession, which was more than a statistical technical one.

More than a mere economic indicator, a country's projected annual growth is no doubt a key guidepost for economy watchers and business people. But rather than any fixation on one growth figure, the greater focus should probably be on the economy's longer-term resilience, strengths and strategy - its reservoir of resources to both deal with immediate economic challenges and to ride opportunities for further future growth. And here, Singapore just received last week a vote of confidence from an international advisory council of global business leaders who said local businesses here still have a competitive advantage to compete effectively in the region, and the economy remains well-positioned for the future. But even as it focuses on core basics, it should - as it must in today's turbulent climate - remain agile and flexible.