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Economists unfazed by weaker quarterly growth

Only 1 in 6 polled revises first-quarter estimates despite latest data being weaker than expected

ANALYSTS are upbeat about the economy’s outlook in the current first quarter despite some weaker-than-expected economic figures yesterday.

In fact, out of six analysts polled by The Straits Times, only one was revising her first-quarter estimate.

The rest are sticking to their guns despite the lower-than-forecast advance estimates for Singapore’s fourthquarter growth.

Many said a key factor behind the weaker results last quarter was a cyclical slowdown in the pharmaceutical sector, which meant lower manufacturing contributions to economic growth.

This was more a reflection of the industry’s volatility and less a sign of weakening demand. Also, continued strong performances from other sectors, such as services and construction, will buoy the economy, they said.

The Ministry of Trade and Industry yesterday released economic growth estimates for the fourth quarter of 6 per cent on a year-on-year basis, after a 9 per cent gain in the third quarter.

On a quarter-on-quarter seasonally adjusted annualised basis, economic output actually fell by 3.2 per cent compared with a 4.4 per cent gain a quarter earlier.

This translates to a 7.5 per cent economic growth for the full year, which falls at the bottom end of the official government forecast range of 7.5 per cent to 8 per cent full-year growth.

Advance estimates are computed largely from data from the first two months of the quarter and are subject to revision when more comprehensive data becomes available.

Of the six analysts polled, only Ms Selena Ling, an economist with OCBC, lowered her first-quarter forecast to 5.8 per cent from 6.2 per cent after reviewing the advance fourth quarter estimates. She also lowered her full-year 2008 estimates by half a percentage point to 6 per cent.

A key financial indicator of how the first quarter will perform is if the notoriously volatile pharmaceutical sector remains suppressed this year or bounces back rapidly, she said.

However, United Overseas Bank economist Ho Woei Chen believes there is no need to panic.

Although surprised at the weaker numbers, she said: ‘It’s down to the routine shutdown of plants in the pharmaceutical industry, which is part of the production process.

‘The sector tends to be inelastic to global business cycles, and I expect the biomedical industry to do well in the first half of this year and offset any potential slowdown in the electronics sector.’

She maintained her first-quarter estimate of 5.5 per cent and expected full-year gross domestic product to grow by 6.3 per cent.

The construction sector is expected to benefit from work on two integrated resorts and the Marina Bay Financial Centre, which are moving into the higher-value stages of development, Ms Ho added.

‘Services and tourism will also receive a boost when attractions and events, such as the Formula 1 race, come to town,’ she said.

When asked if fears of a technical recession – when the economy contracts for two quarters in a row – are wellfounded, Action Economics economist David Cohen said it was not an impossibility.

‘We have to wait and see how things play out in the rest of the world. But the unemployment rate is at its lowest in almost a dozen years, so any contraction would literally be ‘technical’ because it is obviously not a downturn here in Singapore.’

He also said he expected the latest numbers to encourage the Monetary Authority of Singapore (MAS) to exercise patience when it came to adopting an aggressive monetary policy to handle burgeoning inflation.

A stronger Singapore dollar will help reduce prices of imported goods, but will also make exports more costly and less competitive. Singapore’s latest November consumer price index surged 4.2 per cent – a 25-year high.

Mr Cohen said: ‘The moderating growth is likely to encourage the central bank to exercise patience when it comes to steepening currency appreciation to handle inflation.

‘Any pickup in inflation this year could also be attributed to the hike in the goods and services tax, which cannot be dealt with through monetary policy anyway.’

Ms Ling agreed, saying: ‘The moderating growth should dampen speculation that the MAS will shift to a more aggressive monetary policy before its policy review in April.’


Source: The Straits Times 3 Jan 08

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