Nov 25, 2009

Economy 'taking a short breather'

Economist believes growth drivers intact and recession is unlikely

By Fiona Chan

AFTER staging spectacular rebounds in the middle of the year, the economy is starting to pull back slightly and the property market boom has paused.

Last month brought a surprise sharp fall in trade - a 12.6 per cent drop from the previous month, the biggest decline since 2002 - and a plunge in sales of new private homes.

But do not panic: This is more likely to be a short breather rather than a return to recession, said Citigroup economist Kit Wei Zheng.

The growth drivers that will buoy Singapore's economy next year and into 2011 are still intact, he said in a report.

An expected recovery in developed economies will help exports here, while the opening of the two integrated resorts will give a lift to tourism, said Mr Kit.

Construction of low-end and public housing should also be increased substantially, and spending on land transport infrastructure - such as the new MRT lines - will provide a $4 billion to $5 billion boost to the economy.

All this means the labour market should recover next year with a net 100,000 jobs to be created, he said.

He believes the jobless rate may have already peaked, and is lowering his average rate forecast to 3.4 per cent for this year and 3 per cent next year.

In 2011 and beyond, Singapore's

medium-term economic growth will be charted by the Economic Strategies Committee, whose recommendations will be announced in next year's Budget.

Some of the key issues to be tackled are labour productivity and the need to increase private consumption and to implement more social safety net measures to make growth more inclusive, said Mr Kit.

While he is bullish on economic growth next year, calling the official forecast of 3 per cent to 5 per cent growth 'conservative', he believes there are some risks, mainly a weaker-than-expected recovery in developed countries.

But there is also the possibility of domestic 'policy miscalculations' as 'populist pressures intensify' ahead of possible elections next year, said Mr Kit. Although he stressed that the risk of this happening was small.

'Immigration policy could be tightened to a greater extent than necessary,' he said.

And if local workers do not pick up the slack in productivity, this could lower growth rates and undermine Singapore's competitiveness, he added.

Labour-intensive industries could be forced to relocate, possibly to Johor, in Malaysia, or Batam, in Indonesia. It could cause wage inflation in the short term as Singaporeans will demand more money to fill the jobs vacated by foreigners, he said. On the bright side, this may slow the widening of the income divide.

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