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Singapore may dodge recession in 2008: economists

SINGAPORE – Singapore’s export-driven economy, which shrank in the fourth quarter, will feel the impact of a slowdown in the United States but will just avoid recession, analysts said on Friday.

Weak exports figures on Thursday suggested the government’s Jan 2 advanced estimate showing the economy shrank in the fourth quarter at an annualised and seasonally adjusted rate of 3.2 per cent would be downgraded when final figures are reported.

Since the advance estimate, US economic data has grown increasingly gloomy and on Thursday the Singapore government reported that exports, the main growth driver, fell in December for the fourth consecutive month.

But economists said buoyant construction and services sectors and a pick-up in drugs production should offset the impact from a weakening US economy in the first quarter, preventing a recession.

The standard definition for recession is two consecutive quarters of economic contraction.

Still, it will be a close call, they said.

Out of 8 economists surveyed, five said Singapore would avoid recession. Three said there was a risk of recession.

‘The likelihood of a recession is in the low probability but high risk category,’ said Song Seng Wun, an economist at CIMB-GK Research said. ‘It all boils down to how pharmaceuticals will do.’

Drugs exports fell in both November and December, suggesting a rebound early this year, economists said. The industry produces about 10 per cent of Singapore’s non-oil exports, the main measure of the republic’s trade performance.

But drug production is volatile because firms often switch products and shut down factories for periods to prepare for production of another drug. This can have an unpredictable impact on trade and growth.

The economy’s contraction in the fourth quarter of 2007 was the first since since 2003. But the economy hasn’t suffered a recession since 2001 and 2002, when the United States was also in recession.

Most economists expect the Singapore economy to grow between 4-6 per cent this year, in line with the government’s forecast, but below last year’s estimated 7.5 per cent.

‘The global demand story is down. If manufacturing turns from being a non-performer to an actual drag, we could be looking at a recession,’ said Selena Ling, an economist at OCBC.

Singapore’s manufacturing sector had a lacklustre showing last year as persistent weakness in technology shipments, and sluggish drug exports in the fourth quarter dragged on growth.

 

Source: REUTERS (Business Times 18 Jan 08)

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