July 15, 2008

Outlook bright for Singapore economy? Yes, but...

Analysts share MM Lee's upbeat forecast but fear inflation and global slowdown would be spoilers

By Bryan Lee, Economics Correspondent

SINGAPORE'S transformation into an international cosmopolitan city will help keep the economy buzzing in the medium to long term.

But analysts, while generally backing Minister Mentor Lee Kuan Yew's bullish view of the economy, warned that the good times may be some time coming.

They said rising inflation and slowing global growth were casting a shadow over the immediate outlook.

Mr Lee said last Friday that the next five to 10 years will be the most promising in Singapore's history, adding that gross domestic product (GDP) growth could reach 7 to 8 per cent in years when the world was not in recession.

His optimism stemmed from efforts to make Singapore a vibrant city where talented people from around the world would want to live.

It is a campaign that is already luring massive investments in buildings and services that the influx of 'foreign talent' will need.

'I share Mr Lee's optimism that for the medium to long term, Singapore's economic outlook is bright,' said Action Economics economist David Cohen.

'The economy is an attractive location for international businesses looking to establish operations in the region and as the region paces global economic growth, Singapore should be able to ride that wave.'

Economists said efforts to restructure the economy are starting to pay off, pointing to how resilience in the services and construction sectors is helping to shield Singapore from the ongoing turmoil in the world economy.

Key to these is the opening up of borders to foreign talent. The influx of foreigners working and living here will lead to investments in services to cater to their needs, they said.

This would help build up the domestic economy and wean Singapore off its heavy dependence on external demand.

'It's very healthy to step back to look at the forest, rather than the short-term cycles,' said Barclays Capital economist Leong Wai Ho.

'With talent now coming here from every corner of the earth, there's going to be a bigger diversity of needs and wants for restaurants, shops and other services.'

He reckoned that Mr Lee's longer-term GDP estimate is reasonable, noting that the economy grew 7.7 per cent last year, and that even after a strong 2006.

Other analysts were more circumspect, including Dr Chua Hak Bin of Deutsche Bank's private banking arm, who said '7 to 8 per cent is a bit high for me'.

'Last year's GDP growth was on a cyclical high. Over the next decade, an average of 5 per cent would be a decent achievement,' he said.

He warned that while the current slowdown is cyclical, it may be some time before things return to normal, noting that similar crises in Japan and Scandinavia have lasted several years.

'Global conditions are not going to be as conducive as they were in the last five years. We're not just facing a credit crunch but stagflation risks from higher oil prices.'

Citigroup economist Kit Wei Zheng said Singapore's restructuring can reduce 'cyclical pain' but cannot completely offset it.

'A lot of the optimism over the remaking of Singapore is overdone and overplayed.

'The fundamental paradigm for Singapore and Asia is that their fortunes still depend in a large extent on the global economy.'

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