March 11, 2008
Economists cut growth forecast for full year to 5.6%
They expect US recession woes to hit the Republic, according to survey
By Nicholas Fang
ECONOMISTS are already counting the costs of the worse- ning United States economic downturn for Asian economies - Singapore, in particular.
Investment bank Goldman Sachs has projected that a 1 percentage point decline in US consumption could hit Singapore economic growth by close to 0.6 of a percentage point.
And a survey by the Singapore central bank has shown that economists and analysts have lowered their expectations for local economic growth this year to 5.6 per cent, from 6.3 per cent in December.
Goldman Sachs' managing director and chief economist for Asia, excluding Japan, Mr Michael Buchanan, said economic modelling showed a direct correlation between US consumption patterns and economic growth in the region.
Goldman's US research team has forecast a mild recession, with US gross domestic product (GDP) expected to fall by an annualised 1 percentage point in the second and third quarters and for consumption to shrink.
'We forecast Asia's GDP growth to slow to 8.3 per cent from 9.5 per cent last year. In 2009, we look for growth to slow a touch further to 8.2 per cent,' Mr Buchanan said at a press conference yesterday.
However, he felt that the tipping point at which the US slowdown would have a more significant impact on Asia is currently just a downside risk to Goldman's lower forecasts and not a reason to ratchet down its expectations even further.
But a survey of 25 economists and analysts by the Monetary Authority of Singapore (MAS) showed that they have already downgraded their expectations for the Republic's economic growth this year.
An earlier survey in December reflected expected GDP growth of 6.3 per cent this year. This was lowered to 5.6 per cent in the MAS' Survey of Professional Forecasters released yesterday.
The survey showed that financial services, construction, and hotels and restaurants are expected to perform better than originally thought, with forecasts all revised upwards in the latest poll.
In particular, the construction sector is expected to grow 15.9 per cent, instead of 13.5 per cent as reflected in the December survey. But manufacturing, wholesale and retail trade and non-oil domestic exports saw lowered growth forecasts.
Based on mean probability distribution, the most likely outcome for the Singapore economy is growth of between 5 and 5.9 per cent, said the MAS. This is at the higher end of the Government's forecast range of between 4 and 6 per cent growth made earlier this year.
The forecast for the consumer price index inflation indicator also rose to 5 per cent from 3.7 per cent, while the year-end unemployment rate is expected to fall marginally to 2 per cent from 2.1 per cent.
Economists The Straits Times spoke to said the results of the latest survey contained no surprises.
OCBC economist Selena Ling said the downward revisions took into account growing concerns over the risk of a US recession in the past few months. 'But this is largely in line with forecasts made earlier this year,' she said.
United Overseas Bank economist Ho Woei Chen agreed, saying that the market had largely lowered its expectations already. 'But we have to bear in mind that 5.6 per cent growth is not bad, given the uncertainties in the world now'.
Merrill Lynch chief Asian economist Timothy Bond has said that there are few signs of a credit crunch in Asia despite troubled global credit markets.
In a weekly note, he wrote that a global credit contraction would affect US and European demand. This would, in turn, slow Asian exports.
However, he does not believe that domestic bank credit markets in the region are prone to contagion as the US credit cycle turns down.
'The market for domestic bank credit...is denominated in local currencies. Both volume and price are responsive to trends in domestic monetary policy, and bank credit is the most important source of funds for Asian consumers and firms.
'As domestic borrowing costs fall in real terms, this supports our view that Asia stands at a very different point in its investment and credit cycle compared to the US,' he said.
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