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Thread: Singapore economy faces triple threat

  1. #1
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    Default Singapore economy faces triple threat

    May 24, 2008

    Singapore economy faces triple threat


    By Nicholas Fang & Alvin Foo

    SINGAPORE is facing a triple whammy of economic threats in the form of surging inflation, slower-than-expected growth and weaker exports, the Government has warned.

    In its Quarterly Economic Survey, the Ministry of Trade and Industry (MTI) said yesterday that first-quarter economic output had grown by 6.7 per cent compared to the corresponding period last year.

    That fell short of a flash estimate of 7.2 per cent released last month, which was based mainly on January and February data. Analysts say the key manufacturing sector stumbled in March.

    The figures look better when compared to the preceding quarter. Economic output jumped 14.6 per cent in quarter-on-quarter terms, rebounding from a 4.8 per cent contraction in the fourth quarter of last year. But even that figure fell short of expectations.

    Another key worry is rapidly rising global oil and food prices. Singapore's inflation rate rocketed to a new 26-year-high of 7.5 per cent last month, continuing its recent rampaging form that shows little sign of easing in the next two months.

    In response, the MTI and the Monetary Authority of Singapore revised the full-year inflation forecast to 5 per cent to 6 per cent, from 4.5 per cent to 5.5 per cent earlier - the second time the forecast has been raised this year.

    Casting a further pall, International Enterprise Singapore announced yesterday that it was cutting its growth forecast for non-oil domestic exports (Nodx) to between 2 per cent and 4 per cent, from the previous 4 per cent to 6 per cent projection.

    And while this year's projected total trade growth is still 6 per cent to 8 per cent, the lower Nodx forecast signals flagging demand for Singapore products.

    MTI Second Permanent Secretary Ravi Menon said at a press conference yesterday that the global slowdown was not a surprise.

    'Consensus forecasts for countries such as the US, European Union and Japan have come down, with the US most likely in or near recession. Asian economies such as China and India are expected to continue growing at a healthy rate, albeit slower than last year.'

    The impact on the Singapore economy will be mixed, Mr Menon said, with export-oriented and sentiment sensitive sectors worse hit, while domestic-oriented industries will perform better.

    Therefore, the MTI had maintained its economic growth forecast for this year at 4 per cent to 6 per cent.

    Mr Menon said the downside risk of a deeper-than-expected US recession seemed to have lessened slightly, thanks to strong actions by the Federal Reserve to restore market confidence.

    Of greater concern to the MTI is rising prices.

    Mr Menon said inflation risks had overtaken slowing growth as a worry. However, he expects inflation to hover at current levels and does not believe the central bank's monetary policy stance, last modified last month, needs to be tweaked for now.

    Economists were mixed in their views of how Singapore would be affected for the rest of the year.

    CIMB-GK economist Song Seng Wun said things were 'not doom and gloom, but more cloudy than a year ago' because of the heightened inflationary risks.

    But Deutsche Bank's chief Asian strategist, Dr Chua Hak Bin, was more optimistic. 'A major positive is that the Government is in a strong fiscal position to respond, with tax cuts or higher spending, if the economy stalls.

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  2. #2
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    Default Re: Singapore economy faces triple threat

    May 24, 2008

    UP: Govt raises inflation forecast for this year

    Consumer price index at high of 7.5% last month; full-year outlook now 5%-6%

    By Nicholas Fang

    INFLATION is now public enemy No. 1 in economic terms, as fast-rising prices replace slowing growth as the Government's main worry.

    'We are facing risks on both sides, but the balance of risk has shifted towards inflation,' said Ministry of Trade and Industry (MTI) Second Permanent Secretary Ravi Menon at a press conference yesterday.

    'We expect food and oil prices to remain elevated in the near term and to feed through into domestic prices,' he said.

    The MTI released figures yesterday showing that the consumer price index (CPI) had reached a fresh 26-year high of 7.5 per cent last month. The CPI is a key inflation indicator.

    The ministry also yesterday raised its inflation forecast for this year.

    Its full-year forecast range for CPI inflation is now 5 per cent to 6 per cent, up from 4.5 per cent to 5.5 per cent. This is the second time it has revised its forecast since the start of the year.

    Mr Menon said the revised forecast is still consistent with earlier expectations of a moderation in inflation during the second half of the year, particularly as the impact of last year's increase in the goods and services tax wears off.

    When asked if he expected inflation to climb higher than last month's 7.5 per cent or if it had peaked, Mr Menon said global uncertainty made it difficult to be sure what will happen.

    'We feel inflation is peaking around current levels, but global trends such as oil prices are still uncertain, so we cannot say if it has peaked yet.

    'However, we don't see it going much higher than it is today.'

    He explained that the MTI had based its forecasts on an expected average oil price of US$110 a barrel for this year.

    'This is significantly higher than for last year and will feed into domestic inflationary pressures here, but we do not expect major upwards spiralling of oil and food prices, and have not built a major correction into our forecast.'

    Crude oil prices have been trading this week at record highs of about US$135 a barrel.

    Mr Ong Chong Tee, the deputy managing director of the Monetary Authority of Singapore, said the central bank's monetary policy stance of an appreciating Singdollar, adopted last month, is still appropriate given the current scenario.

    The bank's chief tool for tackling inflation is its monetary policy, which is implemented by steering the exchange rate of the Singdollar against the currencies of Singapore's major trading partners.

    When asked if the new inflation expectations would necessitate a policy change or an interim meeting ahead of the bank's planned October meeting, Mr Ong said such moves would not be necessary.

    'The policy stance taken in April was not a knee-jerk response but a carefully calibrated decision, and there are no plans to adjust it or for a meeting before October.'

    Mr Menon said that if inflation surges past current expectations, it could have a long-term impact on growth.

    'But we do not expect this to happen this year. We are maintaining our gross domestic product growth forecast at 4 per cent to 6 per cent, and this is predicated on global expectations.'

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  3. #3
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    Default Re: Singapore economy faces triple threat

    May 24, 2008

    DOWN: Outlook for non-oil exports slashed

    By Alvin Foo

    A FLAGGING global economy has forced the Government to slash forecasts for non-oil domestic exports (Nodx) - a key trade indicator.

    International Enterprise (IE) Singapore said the Nodx growth forecast has been revised down to between 2 per cent and 4 per cent from earlier estimates of 4 per cent to 6 per cent.

    An IE Singapore statement yesterday said the revision was made 'as demand for Singapore's products is expected to moderate in line with weaker global economic growth'.

    However, it maintained its forecast of total trade growth for the year of between 6 per cent and 8 per cent.

    The factors behind the revised outlook range from slower growth in developed economies to soaring oil prices and moderate sales growth in the global semiconductor sector.

    'They look like realistic numbers to me,' said HSBC Bank economist Robert Prior-Wandesforde.

    'The cut in the forecast stems from the weakness in the first quarter and from the assumption that growth in the developed world will be soft - particularly in the United States.'

    CIMB-GK economist Song Seng Wun said: 'The Nodx revision is not entirely surprising, as the figure has been relatively volatile over the past few months.'

    For instance, last month's Nodx gained 5.4 per cent year-on-year. That was a welcome turnaround from March, when it slumped 5.9 per cent from a year earlier.

    Singapore's total trade in the first quarter grew 16 per cent to $229 billion, driven mainly by a 68 per cent surge in oil trade.

    Total exports grew 12 per cent, while total imports jumped 21 per cent.

    Nodx rose 0.6 per cent, mainly because of an increase in non-electronic exports; in contrast, electronic exports shrank. Of the top 10 markets, Hong Kong, Japan and South Korea were the largest contributors to Nodx growth.

    IE Singapore's outlook for the rest of the year seemed bleak. 'External conditions are expected to remain soft as world economic growth is likely to slow, led by advanced economies,' it said.

    Economists said new questions have to be asked in the light of the forecast revision for Nodx growth.

    The revision does not bode well for local factories, as the export market is closely linked to manufacturing health.

    Mr Song said: 'The main issues are: How much more drag will exports bring to headline growth? And, going forward, how much can domestic consumption offset the drag from net exports?'

    He added that the road seems rough as global demand is easing. However, the trade figures are still holding up, as seen in last month's numbers.

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  4. #4
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    Default Re: Singapore economy faces triple threat

    May 24, 2008

    No major slowdown for financial servies sector

    THE financial services industry in Singapore could face some sluggishness, but there has been no evidence of large job cuts to date, according to the Monetary Authority of Singapore (MAS).

    'There could be some slowdown, but not a major slowdown,' said MAS deputy managing director Ong Chong Tee yesterday.

    'Anecdotal evidence shows that while financial institutions are reviewing headcounts and business lines, they are also looking at several areas of growth.'

    The global financial sector has been hit by massive job cuts since the United States sub-prime crisis erupted last year.

    Swiss bank UBS announced earlier this month that it would axe a further 5,500 jobs. It had already retrenched 1,500 staff by the end of last year.

    Of the planned cuts, up to 2,600 will be at its investment banking arm, which was the culprit behind the cumulative write-downs of US$37.4 billion (S$51.1 billion) the bank has made since last July.

    The staff cuts will be made mainly in Britain and the US.


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