Published May 29, 2009

An optimist sticks by his forecast

Daiwa's Basu says GDP contraction may be just 3.3%

By ANNA TEO

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(SINGAPORE) Now that leading US economists have the end of the recession in sight - and Singapore's manufacturing output actually turned in April - the optimists can now breathe again. Or so it seems.

Not that too many optimists have stuck around of late, but P K Basu has tended to stick out with his rather more bullish than most views and forecasts of the economy - and stick with them too.

With market forecasts largely within the official projection of a 6 to 9 per cent GDP contraction for 2009, the Daiwa Institute of Research's Asia (ex-Japan) chief economist is a clear outlier with his minus-3.3 per cent call for Singapore.

'I don't think it's particularly far-fetched now, given the turnaround in manufacturing,' he told BT on Wednesday.

Data released this week show that Singapore's industrial output shrank 0.5 per cent in April - a big improvement from March's near-33 per cent plunge, and the best figure since last September. Against March, April's output rose nearly 25 per cent in adjusted terms.

While the April upturn rode on a 78 per cent jump in the volatile pharmaceutical output, it was 'not just pharma-driven', Mr Basu pointed out.

'Electronics are clearly improving, as they are elsewhere in the region, notably Taiwan and Korea. Ship and aircraft-repair (transport engineering) has returned to y-o-y growth.

'Business expectations surveyed in March were decidedly better, and I think a survey conducted now would reveal a further improvement in prospects. The impact of the fiscal stimulus (subsidies for trade finance, SMEs, Jobs Credit) should also begin to have a positive impact in subsequent months.'

But the pharma segment is notoriously difficult to forecast, he conceded. 'But I think we will have four pillars of manufacturing by next year - electronics, pharmaceuticals, transport engineering and petrochemicals, the big new emerging pillar, set to grow phenomenally in 2011 to 2014'.

He believes the April industrial output turnaround possibly marked the end of a year-long manufacturing recession, though the next two months' data bear watching. 'But we expect at least a modest quarter-on-quarter expansion in manufacturing output during Q2 2009,' he said.

Mr Basu lowered his forecasts of most Asian economies' 2009 GDP growth - including Singapore's, to minus-3.3 per cent - in February after the US outlined an initially 'disappointing' action plan to tackle the financial crisis.

On the projected 3.3 per cent contraction, he said: 'Our forecast is much higher than the market consensus because we believe that the huge fiscal stimulus will preserve jobs and renew the flow of risk capital to those segments (smaller enterprises and trade finance) that have been hurt most by the global credit crunch, and so help mitigate the impact of the global downturn on Singapore's economy.'

Overall, 'we believe the early shoots of an economic recovery should be evident in Q3 2009, and that the bottom of the current economic cycle will be in the current quarter', a recent Daiwa report said.

In its latest outlook released this week, the US' National Association for Business Economics' panel of 45 economists predict that the recession will end 'soon', within 2009.