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Fourth-quarter growth slower than expected

Economists derive a figure of 6.4 per cent based on full-year growth of 7.5 per cent

THE Singapore economy appears to have slowed more than expected.

In his New Year address yesterday, Prime Minister Lee Hsien Loong said gross domestic product (GDP) – economic output – had expanded by 7.5 per cent last year.

Private sector economists have calculated that this means the economy grew by 6.4 per cent in the fourth quarter, from a year earlier. While that is still very robust growth, it follows sizzling expansion of nearly 8 per cent in the first nine months.

The derived fourth-quarter figure is below a median forecast of 7.7 per cent taken from a poll by Bloomberg of 15 market economists.

The economy roared ahead by 9.4 per cent in the July-to-September quarter.

‘Most people were expecting fourth-quarter growth to be around 8 per cent. The latest figure shows the economy is likely to have contracted from the third to the fourth quarter,’ said Standard Chartered Bank economist Alvin Liew.

A major letdown came from drug manufacturers, which dragged down overall industrial performance, said economists.

In addition, the financial services sector, one of the stars of Singapore’s economic boom for much of last year, was likely to have been hit by the global credit crunch, said DBS Bank economist Irvin Seah.

‘After the sub-prime crisis surfaced in August, there was a bit of recovery, but the underlying fear remains.

Volatility and fear still rule the financial markets,’ said Mr Seah.

Economists widely expect the slowdown to become more pronounced this year.

Besides a less-than-rosy growth outlook, there is also an added headache to grapple with: inflation.

‘In previous years, we had a fairy tale sort of economy, with very high growth and incredibly low inflation. But the boom cycle has turned,’ said Citigroup economist Chua Hak Bin.

After enjoying above-trend growth for a few years, the supply crunch has hit home, he said. ‘There is a real likelihood of inflation hitting 6 per cent in January.’

Inflation, which reached a 25-year high of 4.2 per cent in November, will be a key worry in the new year, said United Overseas Bank economist Ho Woei Chen. ‘With the substantial hike in taxi fares, and food supply prices still rising, we could see inflation average 5 per cent throughout 2008,’ she said.

Economists said there was also a risk of ‘second-round’ effects of inflation. Workers will probably demand higher wages to make up for higher living costs, Ms Ho said. ‘But with the economy slowing down, employers are less likely to raise salaries by too much.’

Mr Seah of DBS agreed: ‘We are likely to see a period of higher inflation and slower growth.’ But in the longer term, this would not persist, as the underlying fundamentals of Singapore’s economy remain strong, he added.

On the jobs front, the new year will probably not bring about the same bumper jobs growth seen last year.

However, massive jobs cuts announced by beleaguered financial giants are not likely to hit Singapore’s redhot financial services sector severely, Mr Liew said.

‘Asia remains a growth area for banks. In the 2001 slowdown, major banks slashed jobs in the region, only to have to rehire aggressively and pay much more when things got better,’ he said, arguing that employers will not repeat the same mistake.

‘It’s a good finish for 2007,’ said Dr Chua of the latest GDP figures. ‘But the challenges for 2008 will be a lot more.’


Source: The Straits Times 1 Jan 08


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