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Stanchart lowers S’pore growth forecast

STANDARD Chartererd Bank (Stanchart) expects Singapore’s economy to slow even further this year – to 4.5 per cent – as fears of a recession in the United States loom ever larger.

Weaker exports to the world’s largest economy will drag down trade-related services in Singapore, said the British lender, which cut its forecast from 5.7 per cent previously.

‘The US economy is heading into a recession,’ Stanchart chief economist Gerard Lyons yesterday told 200 of the bank’s clients in a seminar.

‘An American downturn directly hits exports from Asia. An American downturn also indirectly impacts confidence,’ he said.

Stanchart’s lower Singapore estimate follows a cut in the bank’s forecast for US growth this year from 1.4 per cent to 0.5 per cent. Its China and India forecasts are unchanged.

The new Singapore prediction is at the bottom end of the Government’s forecast range of 4.5 per cent to 6.5 per cent growth this year.

It is also more pessimistic than the estimates of most economists in Singapore, which generally hover at around 6 per cent.

Goldman Sachs, which slashed its US forecast to 0.8 per cent on Monday, has a 6.4 per cent bet on Singapore, down from 7.3 per cent previously.

Stanchart Singapore economist Alvin Liew said a US slowdown would hit Singapore manufacturers and traderelated services, such as logistics.

Financial services and other growth drivers, such as transport engineering, will also moderate after the high base they set last year.

Strong domestic demand, however, will keep Singapore in the black, unlike in 2001 when the Republic was dragged into the red by a contracting US economy.

Growth in sectors such as construction provided 80 per cent of the country’s economic expansion last year, said Stanchart South-east Asia economist Hui Cheung Tai.

Stanchart expects the US slowdown to be a protracted one, lingering on to next year.

Dr Lyons reckons the severe downturn will prompt the US Federal Reserve to slash its benchmark interest rate to 3 per cent by the middle of the year.

‘In my view, they should go even lower. Do not rule out US rates going all the way down to 1 per cent,’ he said, noting that current economic conditions were worse than the last time the Fed rate was that low.

 

Source: The Straits Times 16 Jan 08

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