December 17, 2008 Wednesday

S'pore economy should recover in 2010: Economist

By Gabriel Chen

THE economy is expected to suffer more pain next year, but the contraction should be shortlived, according to a top international economist yesterday.

Mr Donald Hanna, Citi's global head of emerging markets, said Singapore's economy should shrink by 1.2 per cent next year but bounce back with 3.8 per cent growth in 2010.

'The biggest underlying driver of the recession would likely be an export contraction that is deepening in intensity and broadening in scope,' said New-York based Mr Hanna, who was speaking to the media after presenting his report Emerging World: The Rocky Road to Recovery.

'But given the highly open nature of the Singapore economy, virtually no sector will be spared.'

Mr Hanna's prediction of a rebound in 2010 represents a view shared by a growing chorus of experts, who are tipping a 'relatively short' U-shaped recovery for Singapore.

But their key assumptions are that the US housing market starts to bottom next year while no new 'systemic financial risks' pop up.

Mr Hanna said that Asia emerging markets look 'best protected' due to better fiscal positions and more effective governments.

Yet long-term growth and the prospects for asset appreciation in emerging markets will likely suffer even after the shock of the recession fades, he predicted.

Mr Hanna also believes that emerging markets run the risk that the souring of near-term global growth could spark more protectionist trade attitudes and generally undermine confidence in the ability of markets to provide for 'predictable growth'.

'While world leaders have been quick to call for the avoidance of beggar-thy-neighbour devaluations or trade barriers, the worst for many countries still lies ahead,' he said.

He added that demand for corporate bonds - which have taken a beating this year - might come back in the middle of next year as investor appetite for risk re-emerges.

And there might be better opportunities in Asian bonds because the 'dislocations are bigger in US bond market than in Asian markets,' Mr Hanna said.

Mr Thomas Kaegi, senior economist at UBS Wealth Management Research, told The Straits Times that in terms of Singapore corporate bonds, it is important to go for defensive sectors.

They include utilities, telecommunications and consumer staples.