The most bearish forecast to date says slide could touch 10%

Singapore, Taiwan and Korea are expected to be the worst-hit economies in Asia, a report from CLSA said this week.

Singapore could lose a tenth of its $245 billion economy, while Taiwan is expected to shrink 11 per cent and Korea 7 per cent in 2009, the Hong Kong- based research house said.

The forecast is the most bearish yet issued on the local economy. The Ministry of Trade and Industry last month downgraded its prediction for the year to between -5 per cent and -2 per cent and most private sector forecasts have come within the official range, with Credit Suisse (-5 per cent) and Deutsche Bank (-4.5 per cent) the most pessismistic.

Asianomics economist Jim Walker told Time magazine this month that Singapore and Taiwan could see GDP sink by 5 per cent to 10 per cent.

CLSA argued that key data points have swung in ‘extreme fashion’ in the last quarter of 2008. Based on its newly revised estimates, Singapore could suffer a ‘dramatic halt’ in personal consumption, coupled with double-digit declines in fixed investment and collapsing exports, the house said.

That is despite a record budget deficit and a $20.5 billion ‘Resilience’ package announced by the Singapore government in January. ‘We expect the bulk of the money to be saved,’ CLSA said.

Export volumes in Singapore are seen contracting a fifth in 2009, while collapsing domestic demand will likely mean a similar drop in imports. The MTI said that 2008 non-oil domestic exports fell 7.9 per cent and is expected to fall between 9 and 11 per cent this year.

CLSA said exports here have already dropped a seasonally adjusted 32.1 per cent from its July peak.

Manufacturers in both China and the US are now reducing inventories and this is likely to hurt economies that had expected to benefit from new orders. ‘China’s demand for parts and materials is still shrinking at an accelerating rate,’ CLSA noted.

OCBC economist Selena Ling said the surprise in the present downturn was not the contraction in manufacturing and exports, which have been poor for some time now. ‘What is relatively new is the speed of the drop-off in services growth, which are a huge part of GDP and employment,’ Ms Ling said.

CLSA said Hong Kong’s economy is also expected to contract, but by a less sharp 5 per cent this year. ‘The absence of a highly cyclical manufacturing industry and the absence of a physical property overhang means that Hong Kong will perform ‘better’ than Singapore,’ CLSA said.
Yesterday, Standard & Poor’s economist Subir V Gokarn said in a report that Singapore’s GDP could contract between 4.5 per cent and 5 per cent if the US economy shrinks 3.8 per cent in the worse case.

‘Strong external links, particularly to the US economy, will lead to a sharp contraction in 2009 as external demand slows down rapidly. A fiscal stimulus will help contain the slowdown, but in a limited way,’ he said.

Source: Business Times – 6 Feb 2009