Forecast for Singapore remains unchanged at 4% to 6%, says minister

THE events in Japan are unlikely to have a major impact on Singapore’s economy this year as long as its industrial activities are not disrupted for a long period, said Trade and Industry Minister Lim Hng Kiang yesterday.

Likewise, while the events in the Arab world have led to a spike in oil prices recently, the overall impact on world economic growth is likely to be small, he added. Part of the reason is that the worst-affected countries, such as Libya and Bahrain, are not key oil exporters.

As such, the Ministry of Trade and Industry’s growth forecast for Singapore’s economy will not change from the current 4 per cent to 6 per cent range, he said.

Mr Lim was replying to Madam Halimah Yacob (Jurong GRC) and Nominated MP Teo Siong Seng, who had asked about the impact of these events on Singapore.

He said there is a great deal of uncertainty over the events in both Japan and the Arab world, as they continue to be dynamic and fluid.

In Japan’s case, the devastating earthquake on March 11, which also resulted in a tsunami and nuclear crisis, is its worst disaster since World War II, with almost 28,000 people missing or dead, while industries have been hit hard.

It is a key trading partner of Singapore, accounting for around 6 per cent of the Republic’s international trade, noted Mr Lim. The Japan disaster could result in short-term impacts on manufacturing and trade activities in the region, but much will depend on how prolonged the disruption to industrial activities in Japan turns out to be, he said.

But he added: ‘At this juncture, we do not expect significant impact on our supply chain. Less than 10 per cent of our electronics imports – mainly components and parts – are from Japan.’

Feedback from engineering firms also shows they have enough inventory buffers to tide them over any supply disruptions for a few months, he said: ‘If Japan can resolve its nuclear power plant problems and factory production resumes in the near term, any negative impact on the supply chain will likely be transitory.’

For the services sector, Japanese tourists formed about 5 per cent of the total number of visitors to Singapore last year.

‘A slowdown in tourism flows from Japan would thus affect our tourism-related industries,’ he said.

Preliminary assessments, however, show the impact is unlikely to be large, he noted.

He also addressed concerns about the political unrest in the Middle East and North Africa, especially since oil prices have been rising in recent weeks.

The benchmark Brent crude oil has soared in the past two weeks over worries of a supply cut in oil-exporting Libya, reaching nearly US$127 per barrel, the highest since 2008.

But Mr Lim said yesterday that the unrest ‘has not significantly affected global oil supply as the worst-affected countries such as Libya and Bahrain are not key exporters of oil’.

He added: ‘Moreover, some members of the Organisation of the Petroleum Exporting Countries (Opec) like Saudi Arabia have made commitments to increase oil production to cope with any supply disruptions in the region.

‘As such, although the recent increase in oil prices is likely to have affected global economic activities to some extent, the impact has been small.’

If the situations in Japan and the Arab world do not deteriorate further, Mr Lim said Singapore’s economic outlook is positive. Citing industrial production and exports, he noted that they are pointing to growth continuing at a healthy pace.

‘There are also signs the recovery in the advanced economies is gaining momentum, as indicated by recent improvements in the US labour market,’ he said.

Economists interviewed agree with Mr Lim’s prognosis of the economy.

Bank of America Merrill Lynch economist Chua Hak Bin expects the impact of the Japanese fallout to be limited and short-lived.

‘But I would caution that if oil prices hit US$140 a barrel, there could be significant impact on world growth, which then could hit Singapore,’ he said.

aaronl@sph.com.sg

POSITIVE SIGNS

‘There are also signs the recovery in the advanced economies is gaining momentum, as indicated by recent improvements in the US labour market.’

Mr Lim Hng Kiang

Source: Straits Times, 12th April 2011

Rate should be between 3% and 4% if no further oil price hike: Minister

The Government is also embarking on a multi-pronged approach to tackle food price inflation, which includes diversifying Singapore’s sources of food from overseas. — ST FILE PHOTO

INFLATION has likely peaked and will moderate for the rest of the year, said Trade and Industry Minister Lim Hng Kiang.

Assuming no further increase in oil price, inflation should stay between 3 per cent and 4 per cent.

‘This means CPI (consumer price index) inflation, which rose by 5.2 per cent on a year-on-year basis in the first two months of 2011, is expected to moderate from now on,’ Mr Lim told Parliament yesterday.

He was responding to Madam Ho Geok Choo (West Coast GRC) and Madam Cynthia Phua (Aljunied GRC), who wanted to know if inflation projections have been changed following higher oil and food prices resulting from events in Japan and the Arab world.

Inflation in Singapore hit a two-year high of 5.5 per cent in January, before easing to 5 per cent in February, raising concerns about the impact on cost of living.

But economists interviewed yesterday had mixed views on whether the inflation picture has changed in the past two months.

DBS Bank economist Irvin Seah said oil prices could still rise in the next few months, complicating the inflation picture.

But Bank of America Merrill Lynch economist Chua Hak Bin agreed with Mr Lim, noting that the bulk for the rise in the CPI stemmed from car and housing prices.

‘Inflation is coming off a peak and I expect that inflation will ease for the rest of the year,’ he said.

Dr Chua also noted that the measures announced in this year’s Budget will kick in soon, further alleviating the impact of inflation.

The measures include Growth Dividends for all adult Singaporeans, with the majority receiving between $600 and $800 each, Workfare Special Bonuses, income tax rebates, and conservancy and utilities rebates.

Mr Lim said that the Government is also embarking on a multi-pronged approach to tackle food price inflation, including strengthening the Singapore dollar as well as diversifying its sources of food from overseas.

‘By buying from many sources, Singapore is better buffered against potential food shortages and to a lesser extent from food price volatility,’ he added.

The Retail Price Watch Group (RPWG), led by Minister of State for Trade and Industry and Manpower, Mr Lee Yi Shyan, has also been set up to keep food prices steady.

Mr Lim noted that the watch group has worked with supermarkets to maintain prices of house brands of essential food items for the next six months.

Similarly, about 1,000 hawker and foodcourt stalls have joined the ‘I support RPWG’ in maintaining prices or providing promotions for customers, he said.

Source: Straits Times, 12th April 2011

Robust trading volume as STI posts eight straight day of gains

THE Singapore market was determined to show yesterday that it was not ready to end the bull run yet.

Investors ramped up the trading volume and delivered the local bourse its eighth straight day of gains, as the Singapore dollar hit a new high against the United States dollar and commodity markets rallied.

The benchmark Straits Times Index (STI) rose 15.66 points, or 0.49 per cent, to 3,187.31, ending the week up 2 per cent. Turnover was brisk, with 1.62 billion shares worth $1.8 billion changing hands.

The buoyancy in Singapore mirrored that seen across the world, as global shares hit their highest levels in almost three years yesterday.

‘The decision by the European Central Bank to raise interest rates suggested confidence that the European economy may be stable enough to take the slight shift in monetary policy,’ said CIMB analyst Song Seng Wun.

‘US data continues to be fairly decent. There’s no bad news and investors are now focusing on the upcoming reporting season.’

Other Asian bourses also ended mostly in the black. Tokyo closed 1.85 per cent higher, while Hong Kong rose 0.47 per cent and Shanghai added 0.74 per cent.

In Singapore, 19 of the STI component stocks ended higher, while nine fell and two remained unchanged.

Hutchison Port Holdings Trust regained its position as the most actively traded stock, rising two US cents to US$1.01 on 198 million shares.

This brings the trust back to its initial public offering price. It had previously been underwater since its listing debut on March 18.

The biggest market mover, however, was CapitaLand, which jumped nine cents to $3.50, pushing the STI up 3.15 points.

Other property firms also gained ground, with City Developments up 12 cents to $11.76 and CapitaMalls Asia rising two cents to $1.88.

Palm oil companies enjoyed gains as crude palm oil futures climbed 1.9 per cent in Kuala Lumpur yesterday, heading for a second straight week of gains.

Golden Agri-Resources rose 1.5 cents to 73 cents, Indofood Agri Resources increased five cents to $2.32 and Wilmar International advanced two cents to $5.37.

Singapore Exchange increased 23 cents to $8.38 after Australian Treasurer Wayne Swan said the government had formally rejected Singapore Exchange’s bid for bourse operator ASX. Both bourses have terminated their merger deal.

‘The prevailing market price has been factoring in a potentially overpriced deal,’ said UOB-Kay Hian analyst Simon Ng in a note. ‘With the deal being called off for good, the stock price is on track to an easier way up.’

STX OSV, the world’s biggest maker of oil-rig support vessels by sales, rose two cents to $1.31. The company said it had won contracts for the design and construction of three multi-role vessels for DOF ASA, a Norwegian owner of supply and speciality ships used in the energy industry. The firm did not disclose the financial value of the contracts.

Source: Straits Times, 9th April 2011

THE Singapore dollar touched a fresh record high against the ailing US dollar yesterday as global investors sold down the greenback on fears of US government paralysis over a budget deadlock.

At about noon yesterday, the Singdollar strengthened to a high of $1.256 against the US dollar – the first time it has dropped below $1.26. By evening, it was trading around $1.257.

As the greenback slides and inflation worries gather pace worldwide, investors are piling into precious metals as safe haven investments.

‘The gold and silver markets are experiencing a perfect storm,’ said Dublin-based consultancy GoldCore in an e-mail interview with Bloomberg, citing Arab world political risk, rising inflation, and government debt concerns in the United States and Europe.

Gold rose as high as US$1,470.65 (S$1,848) an ounce yesterday, a new record peak, while silver hit US$40 an ounce for the first time since 1980.

Crude oil prices yesterday soared above US$111 a barrel in New York while Brent North Sea crude shot past US$124 a barrel in London for the first time since 2008 as a fire burned at a Libyan oilfield, raising fears that the violence in the Arab world will lead to oil supply cuts.

However, stock markets are unfazed by the turbulence. The MSCI main world equity index, which tracks global bourses, rose to its highest level since July 2008, as a recovery in the US jobs market is seen to be on the cards.

Also, the European Central Bank announced it would raise interest rates on Thursday to curb inflationary pressures, a move seen as a vote of confidence in Europe’s gradual recovery despite Portugal’s request for a financial bailout.

In Singapore, upbeat investors helped propel the Straits Times Index 0.5 per cent higher to close at a two-month high in its eighth straight session of gains.

However, analysts say investors looking to profit from the rally in crude oil, silver, gold or the Singdollar should wait for a dip in these markets to make an entry.

The Singdollar’s rapid gains are being driven by concerns over rising inflation as a result of the surging oil price, said Barclays Capital regional economist Leong Wai Ho.

He expects the Singdollar to strengthen to $1.23 against the greenback by the year end as the Government will likely tighten monetary policy to combat inflation. The Singdollar is expected to strengthen after next week’s monetary policy review.

‘In Singapore, every ounce of oil is imported. To prevent imported inflation from entering consumer prices, the Government will have to erect a wall and that wall is the currency,’ he said.

The US dollar fell to its lowest since December 2009 versus a basket of currencies, as the White House and US Congress worked frantically to break their deadlock on the country’s budget.

Senior Westpac foreign exchange strategist Jonathan Cavenagh advises patience to investors tempted to sell the US dollar. ‘Better entry levels will present themselves. In this environment, you should still be bearish on the US dollar, but wait for it to bounce back a bit.’

Some investors are already reaping gains from the softening US dollar.

‘I made good profits this week when the euro shot up against the US dollar,’ said full-time forex trader Mario Singh.

He next plans to bet on the New Zealand and Australian dollars rising against the greenback, as he expects currencies of commodity-producing nations to strengthen as commodity prices soar.

‘Gold is an inflation hedge. Investors are seeing that there is more value in putting their money in gold than in the weakening US dollar,’ said Phillip Futures Asian commodities manager Avtar Sandu. ‘Silver is also an inflation hedge and an industrial metal as well.’

Source: Straits Times, 9th April 2011

Most forecasts for growth this year are within the official projection of 4-6%
(SINGAPORE) Economic growth momentum will likely remain intact this year, even as the headline gross domestic product (GDP) pace is expected to slow sharply from 2010′s almost-15 per cent.

Economists commenting on the flash estimates of the 2010 final-quarter economic performance reckon that full-year growth will likely be revised up eventually to 15 per cent from 14.7 per cent. The early Q4 estimates are based only on data from October and November.

The Q4 rebound – with GDP growth picking up to 12.5 per cent and, in sequential terms, returning to the black after a Q3 slump – was driven mainly by a surge in pharmaceutical output, the Ministry of Trade and Industry (MTI) said.

The services sector also continued to post ‘healthy’ growth in Q4, with good buzz in financial services – particularly in the Asian currency unit activity, commercial banking and foreign exchange trading.

Strong visitor arrivals from the region also boosted tourism-related services, MTI said.

But the construction sector remained soft as private sector building activities declined.

The flash data are not too far from market expectations, if a little below consensus, and most forecasts of 2011 growth are now within the official projection of 4 to 6 per cent – a rather more sustainable and roughly trend pace.

Barclays Capital’s Leong Wai Ho expects sequential growth to stay positive – ‘in the single-digit range’ – in the quarters ahead even as growth slows to, he reckons, 4 per cent year-round.

Unlike in the first half of 2010 when the sequential pace surged to stratospheric levels of 45 and 28 per cent, Mr Leong believes that quarterly growth this year will be more sustainable but still fairly strong.

And the growth drivers will be not only the services sector – with greater consumer spending during the festive season – but also an expected pick-up in demand for electronics on the back of the launch of Intel’s Sandy Bridge chips early this year.

That – as well as explosive growth in demand for tablet PCs worldwide – should propel demand for components such as integrated circuits that are made in Singapore, he said.

But the trend growth this year, along with strong wealth creation, will continue to drive wage price pressures in Singapore, Mr Leong added.

Despite the high base of 2010′s first half, JPMorgan Chase Bank economist Matt Hildebrandt – who has forecast a 5 per cent growth for the year – also expects Singapore’s 2011 growth to be the strongest in the first six months.

DMG Research believes that uneven recovery in the advanced economies, along with Chinese policy tightening, will hit Singapore’s exports but still forecasts 5.6 per cent GDP growth here, at the higher end of the official projection. And the services sector will contribute about 73 per cent of the growth, it estimates.

Meanwhile, economists from two local banks are at opposite ends of the forecast spectrum.

OCBC’s Selena Ling is looking at 4-5 per cent growth in 2011 on the assumption that manufacturing growth will ease from 2010′s 30 per cent to a single digit, and both the services and construction sectors will just maintain their pace.

DBS’ Irvin Seah, on the other hand, says that the ‘fallout in manufacturing growth is unlikely and possible capacity expansion in the pharmaceutical segment could still spring upside surprises’ and continues to plug his 7 per cent growth forecast for the year, with services and job creation as the key drivers.

Source: Business Times, 4 Jan 2011

Government will ensure majority of citizens gain from growth, says PM
PRIME Minister Lee Hsien Loong yesterday flagged the widening income gap as an issue the Government is trying to tackle, even as the economy grew a record 14.7 per cent last year in a dramatic rebound from negative growth in 2009.

He noted in his New Year message: ‘We are striving to ensure that the broad majority of Singaporeans benefit from growth, including the low-income, less-skilled workers and the middle group who feel sandwiched in between.’

He also cautioned that the exceptional growth last year was due to special circumstances and unlikely to be repeated soon.

The official forecast for this year is 4 to 6 per cent. Year-on-year, the economy grew 12.5 per cent in the last quarter of 2010.

Mr Lee noted that growth had improved Singaporeans’ lives, but also brought a number of challenges. These included managing the inflow of foreign workers and immigrants, keeping homes affordable, and helping low-wage workers cope with the cost of living.

‘We have the means to tackle these problems, and make things better. But in doing so, we must remember to keep Singapore open and welcoming to talent, preserve the value of the flats of 800,000 HDB home owners, and strengthen the spirit of self-reliance among Singaporeans,’ he said.

On the widening income gap, Mr Lee noted that this has affected many countries as a result of globalisation, competition from emerging economies, and new technology.

He said: ‘In the United States, the annual incomes of the bottom 90 per cent of families have been essentially flat since the 1970s, having risen by only 10 per cent in real terms.

‘Even in China and India, while hundreds of millions of people are improving their lives, incomes in the top and bottom tiers are diverging.’

In Singapore, the Government has many schemes to help the poor. In recent years, it has enhanced Public Assistance and HDB housing grants, and introduced ComCare and Workfare.

For the middle-income earners, the Government has lowered income tax rates, and is building more executive condominiums so that they have more housing options.

Mr Lee stressed, however, that the most important programmes are not financial transfers but efforts to upgrade workers’ skills. This was why, he said, the labour movement, employers and the Government have jointly embarked on a major effort to raise worker productivity.

Mr Lee also highlighted two other factors critical to Singapore’s success: good leadership, and Singaporeans having the right spirit.

On leadership, he said the Singapore system ‘has produced strong and effective government, fostered national consensus on key issues, and focused our efforts to achieve national goals’.

For this to continue, Singapore needs leaders ‘who deliver good policies, create opportunities for the people, and rally citizens to work together for a better tomorrow’.

‘The team must lead Singapore competently today, while grooming potential successors for the future. Ensuring continuing capable leadership for Singapore is a vital priority for the nation,’ he added.

At the same time, he noted the importance of Singaporeans having the spirit to try new things, confidence to face competition, and willingness to give their best.

Singaporeans showed this spirit during the Youth Olympic Games last year, which owed its success to thousands of volunteers who worked tirelessly to put on their best for the world.

‘We must nurture and strengthen this spirit which makes Singapore work, and Singaporeans special,’ said Mr Lee.

Source: Straits Times, 1 Jan 2011

Singapore’s economy turned out to be an unexpected source of excitement this year but the pace is set to ease off next year. It is projected to grow 4 to 6 per cent, a far cry from this year’s 15 per cent growth. The Straits Times looks at the key themes of the economy next year.

Manufacturing: More moderate growth

A potent combination of electronics and drugs sent factory production into overdrive this year.

But now that companies have topped up their inventories in line with the global economic recovery, demand for electronics may slow down in the months ahead, said UOB economists in a report this month.

‘Looking at the electronics segment, output might start to wane with the semiconductor components moderating as a result of the inventory rebuilding cycle ebbing,’ the report said.

‘The segment might see some easing also after Christmas orders for electronic products have been filled.’

On a brighter note, the retail and electronics inventory levels in the US – a key source of demand – remain low, said Citigroup economist Kit Wei Zheng. This ‘should limit the knock-on impact on Singapore’s exports and manufacturing output’.

He added: ‘Corporate IT demand should also be supported by upgrading demand and cash-rich corporate balance sheets.’

And the eventual performance of the manufacturing sector still hinges on the all-important but volatile pharmaceutical segment, which could swing the numbers either way.

According to 22 economists polled by the Monetary Authority of Singapore (MAS) in its latest survey of professional forecasters, the median expectation for manufacturing growth next year is 5.6 per cent, while non-oil domestic exports are predicted to grow 12 per cent.

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Services: Good expansion prospects

While manufacturing always provides a more interesting if choppy growth picture, services will be the mainstay of expansion next year, economists believe.

‘The growth baton is expected to pass from manufacturing to the services sector in the quarters ahead,’ said DBS economist Irvin Seah. ‘Services should pick up some of the slack for the manufacturing sector.’

Having opened with a splash this year, the integrated resorts (IRs) will continue to contribute to economic growth next year by bringing in more tourists, boosting the hotels, restaurants and retail sectors.

Firms in the financial and business services segments will also reap the rewards from capital inflows, which are expected to remain strong, said Mr Seah.

‘We are looking at the overall services sector registering growth of nearly 6 per cent, compared to around only 3 per cent for manufacturing,’ said UOB economists.

‘The hotels and restaurants segment could grow by about 7 per cent, while wholesale and retail trade could be up 4.25 per cent. Financial services will also continue to be buoyant with the continuing activity in the capital, stock and property markets.’

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Inflation: Prices up but expected to ease later

Rising prices have been singled out by both the Government and private sector economists as the main challenge facing the economy next year.

The MAS has said it expects inflation to reach 4 per cent early next year before easing to about 2 per cent in the second half. For the whole year, inflation is expected to come in at 2 to 3 per cent.

Economists tend to concur. Credit Suisse economist Kun-Lung Wu predicts that inflation will remain above 3 per cent in the first half but fall in the later months as the lower base effect tapers off.

‘Our seasonally adjusted estimates indicate that inflation momentum has slowed in recent months,’ he said.

‘However, the recent rise in food and fuel prices, the hike in Electronic Road Pricing rates and a less favourable base effect suggest that inflation will rise further in the near term.’

As economic growth continues apace here, the supply of labour has been unable to keep up, added Citigroup’s Mr Kit.

‘Net job creation at around 25,000 in the past two quarters has fallen short of surveys indicating demand for up to 40,000 workers, while the number of vacancies now outnumbers job seekers for the first time in more than two years.’

This imbalance, on top of policy changes such as the expiry of the Jobs Credit Scheme in July this year, is likely to add to wage inflation this year, he said.

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Monetary policy: MAS keeping close watch

As a result of inflationary pressures, most economists expect the MAS to retain its appreciation stance on the Singapore dollar next year – and possibly let the currency rise even more quickly.

The central bank already tightened its monetary policy twice this year as strong economic growth led to rising prices. But despite an expected decline in growth next year, the MAS ‘cannot take its foot off the brake’, said HSBC economist Leif Eskesen.

A stronger Singdollar helps prevent a wage-price spiral resulting from a tighter labour market, and mitigates imported inflation from higher commodity prices and abundant global liquidity, said Credit Suisse’s Mr Wu.

‘We think the current monetary policy stance is enough to keep inflation within the MAS forecast path of 2 per cent to 3 per cent in 2011. However, the MAS might still tighten the policy further in April if growth or commodity prices surprise on the upside.’

Apart from higher consumer prices, asset price inflation is also worrying the authorities, which implemented two rounds of measures to cool the real estate sector this year. While these have helped take some of the heat off, ‘more measures may be needed to ward off the threat of a bubble’, said Mr Eskesen.

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Construction: Line-up of transport projects

Growth in construction, the third and smallest pillar of Singapore’s economy, has tapered off this year as mega projects such as the IRs reach completion.

In the year ahead, the sector is likely to feel the pain from recent government measures to cool the property market, said DBS’ Mr Seah. But he added: ‘A healthy pipeline of public transportation projects will support growth in this sector.’

Economists in the MAS survey projected 5 per cent growth in the construction sector next year.

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The Singapore dollar: Likely to remain strong

The Singapore dollar hit one all-time high after another against the US dollar this year, bringing cheer to shoppers and woe to exporters.

And its rise is far from over, as the MAS is likely to keep letting the currency appreciate to counter inflation next year.

‘With the MAS having set the monetary policy of a gradual appreciation of the Singdollar, this should signal the strengthening of the Singdollar,’ said UOB economists.

But they predict that the currency will rise at a slower pace, reaching $1.28 against the greenback in the first quarter of next year but finishing the year at $1.25 against the US dollar.

This is slightly higher than the projection from the MAS survey of professional forecasters, which puts the Singdollar at $1.24 to the US dollar by the end of next year.

Source: Straits Times, 31 Dec 2010

MAS report cites low interest rates and uncertain global outlook

THE report card is out on Singapore’s economic performance and the results are overwhelmingly positive, with banks and businesses booming and households richer than they have ever been.

But there are still dangers lurking, according to the annual financial stability report released by the Monetary Authority of Singapore (MAS) yesterday.

It cited the uncertain global economic outlook and easy lending environment amid rock-bottom interest rates here as key risks.

But the report’s underlying theme was strikingly buoyant, prompting DBS economist Irvin Seah to note: ‘Singapore is in a good place.’

Households are more wealthy than they have ever been, holding a record $1.16 trillion in assets like property and shares as well as cash. This is about $150 billion more than last year.

Banks are well capitalised and more than able to meet the new international standards, noted the MAS, while company profits have recovered from the lows of last year.

The stock market is exhibiting the same signs of strength, with share prices up 9 per cent this year and twice as many new listings than last year.

Mr Seah said that the country is in a very strong position to benefit from Asian growth, which has led the world out of the recession.

‘Banks are flush with cash and can afford to lend more, while households are wealthy,’ he noted.

Singapore is projected to grow at 15 per cent this year and 4 to 6 per cent next year.

But the MAS also cautioned that significant risks remain, primarily the possibility that the United States, Europe and Japan could experience a protracted economic slowdown.

‘The resulting impact on corporate and household balance sheets could impinge on repayment ability and eventually affect the quality of banks’ loan exposures,’ it said.

These countries have also eased monetary conditions to boost their flagging economies, resulting in low interest rates.

That has made Asia a magnet for investors in developed countries, who are pouring cash into assets such as property and shares in the search for better yields. The spin-off effect has been to jack up prices.

‘The search for yield among investors with short investment horizons or those that are excessively optimistic could push prices away from fundamentals,’ said the MAS, which noted that about US$600 billion (S$785 billion) has flowed into Asia since the middle of last year.

In August, the Government implemented a series of cooling measures to combat soaring property prices, but it is too early to tell if they are effective, it added.

Expectations of continued low interest rates may also encourage ‘lax lending practices and imprudent borrowing’ from both households and firms here, said the MAS.

Rates here are at near rock-bottom: The three-month interbank rate is at 0.44 per cent while the overnight rate is just 0.05 per cent.

If these rates rise, households and firms could find themselves over-extended, added the MAS.

Dr Chua Hak Bin, director of global research at Bank of America Merrill Lynch, said there is increasing concern that low interest rates are encouraging people to make hasty decisions to borrow and buy.

‘With talk of more property curbs, the worry is that people may make a quick decision to buy property now to avoid those curbs,’ he said.

Source: Stratis Times, 26 Nov 2010

Transport engineering cluster most optimistic

BUSINESS sentiment in the manufacturing sector is expected to moderate in the next six months compared with the third quarter of 2010, according to the Economic Development Board.

Overall, a net weighted balance of 3 per cent of manufacturers anticipate a more favourable business outlook for the six-month October 2010-March 2011 period, down significantly from 18 per cent in last quarter’s survey.

Of the various clusters within the manufacturing sector, transport engineering emerged as the most optimistic, with a net weighted balance of 22 per cent of firms expecting the business situation to get better for the October 2010-March 2011 period. In contrast, electronics firms were the most pessimistic, with a weighted balance of 7 per cent envisioning a less favourable business situation for the same time span, as they foresee lower orders as a result of uncertainties in markets such as the US and Europe.

For the current fourth quarter, employment prospects in the manufacturing sector are expected to remain relatively stable.

Meanwhile, a separate survey released by the Department of Statistics on business expectations for the services sector shows a net weighted balance of 27 per cent of firms in the sector are optimistic about the business situation for the October 2010-March 2011 period, down from 33 per cent registered for the July-December 2010 period in the last quarter’s survey.

Among different industries, those within the amusement and recreation segment have the rosiest outlook, with a net weighted balance of 65 per cent of these firms upbeat about business conditions in the coming months.

In contrast, firms in the real estate industry – and real estate developers in particular – foresee a drop in business volume for the six months, versus the April-September 2010 period.

For current Q4 operating receipts, a net weighted balance of 24 per cent of firms in the services sector expect revenue to rise quarter-on-quarter. Also, a net weighted balance of 21 per cent expect employment to increase in Q4.

Source: Business Times, 30 Oct 2010

But economy still on track to hit official forecast of 13-15% growth this year

(SINGAPORE) The Republic’s economy pulled back by more than expected in the third quarter but ‘remains on track’ to hit the official forecast of 13 to 15 per cent growth this year.

Releasing advance estimates yesterday, the Ministry of Trade and Industry (MTI) said gross domestic product (GDP) grew 10.3 per cent in Q3 from a year ago – shy of economists’ 10.8 per cent forecast and slower than Q2′s revised-up growth of 19.6 per cent.

A record sequential plunge had been expected, but the economy’s 19.8 per cent annualised contraction from the quarter before was sharper than the consensus forecast of a 15.7 per cent pull-back.

None were too taken aback though. Government and economists alike have said that the first half’s blistering growth would not be sustained.

‘The decline in growth momentum was an expected correction from the exceptional growth,’ MTI said yesterday. And inflation appears to be the greater worry, given the central bank’s surprise monetary tightening yesterday.

The volatile biomedical sector was largely responsible for the manufacturing sector shrinking 57 per cent on a seasonally adjusted annualised basis from the preceding quarter, reversing its 66.6 per cent growth in Q2. Pharma companies produced a different value-mix of active ingredients and closed plants for maintenance in the quarter, MTI said.

But weakness extended beyond biomedicals, excluding which Credit Suisse economist Robert Prior-Wandesforde estimates GDP would have been flat q-o-q. Manufacturing growth overall slowed to 12.1 per cent y-o-y growth in Q3 after notching up 46.1 per cent in Q2.

Construction shrank an annualised 11.7 per cent q-o-q, compared to its 29.1 per cent expansion in the preceding quarter, as key commercial and industrial buildings were completed earlier this year.

The services sector saw modest sequential growth of 1.6 per cent but even that was a sharp moderation from the 12.6 per cent in Q2. MTI said this was due to slower growth in trade-related services like wholesale trade, transport and storage.

For the first three quarters of 2010, the economy grew 15.5 per cent from the same period last year.

Economists are now watching to see if a sequential contraction is likely in Q4, as this could mean a technical recession for Singapore in a year of historic growth.

HSBC economist Song Yi Kim thinks it unlikely and expects a mild rebound in Q4 as exports continue to be stronger than expected, which suggests drawdown of the recent inventory build-up, particularly in the biomedical sector. ‘Consumption is solid,’ he added, pointing to rising COE bid prices as an indicator of underlying consumer strength.

MTI, too, said growth in the rest of the year would be underpinned by global electronics demand feeding the electronics and precision engineering clusters. Also, rising visitor arrivals thanks to the integrated resorts and a resurgent Asian market would bolster tourism-related sectors.

A key question going into Q4 is whether services will remain flat, said OCBC economist Selena Ling. ‘The recent property curbs may have a dampening impact on market sentiment and real estate activity, while market speculation of currency wars may add to FX market volatility,’ she said.

She thinks that the ‘slightly perverse situation’ of a technical recession in a boom year is possible if biomedicals continue to underperform and electronics demand cools.

‘The latest manufacturing PMI data slipped into contraction territory, and should shipments for the upcoming Christmas sales season not be strong, that could set the stage for a further manufacturing pullback,’ Ms Ling said.

At least one economist has revised his full-year GDP forecast downwards. Citi’s Kit Wei Zheng is now looking at 14.2 per cent growth this year instead of 15.5 per cent, a scenario he says assumes that a technical recession in Q4 is averted.

Source: Business Times, 15 Oct 2010