Published June 11, 2009

S'pore economy expected to shrink 6.5% this year

But contraction could slow in coming quarters, economists predict

By TEH SHI NING

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(SINGAPORE) Economists and analysts now predict a sharper dip in Singapore's GDP for the full-year than they forecast in March, but continue to expect the rate of contraction to slow in the coming quarters, according to a quarterly survey by the Monetary Authority of Singapore, released yesterday.

The survey showed that 19 professional forecasters polled in late May now expect Singapore's economy to shrink 6.5 per cent this year, worse than the 4.9 per cent contraction forecast in March. This comes in at the higher end of the official forecast of a 6 to 9 per cent contraction.

For the second quarter, the median forecast from respondents was a 7.7 contraction in GDP from a year earlier, a larger decline than the 6.9 per cent fall predicted in March.

But this predicted contraction would still be more moderate than the 10.1 per cent contraction in Q1, when the economy shrank more than the economists' median forecast of an 8.5 per cent decline.

Forecasts for Q3 and Q4 were also revised downwards from March's predictions, to minus 6.6 per cent and minus 1.2 per cent respectively.

Several economists revised their 2009 forecasts downwards after the government released worse than expected preliminary Q1 GDP figures and lowered the official forecast in April. Since then, 'green shoots' seen in indicators such as industrial production and better actual Q1 figures, have prompted upward revisions.

In the latest poll, the minus 6.5 per cent median was derived from full year forecasts ranging from minus 4.8 to minus 10 per cent.

The downgrade came on the back of sharp cuts in projections for the manufacturing, wholesale and retail trade, and hotels and restaurant sectors.

However, a smaller contraction is now predicted for financial services. Construction, the only sector expected to grow this year, is also expected to post stronger growth of 15.9 per cent.

Further easing of the CPI inflation rate is expected for the full year too, with the forecast falling into negative territory at minus 0.5 per cent, from the 0.2 per cent rate reported in March.

The analysts' view of the labour market showed some optimism too, as the median projected unemployment rate was 4.2 per cent, slightly lower than the 4.4 per cent rate reported in March.

For 2010, the median forecast rose to a 4.2 per cent expansion, from the March forecast of 3.3 per cent growth.