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S’pore economists unfazed as US recession fears grow

They opt to wait for more data before revising growth forecasts

FEARS of a United States recession are hitting a fever pitch with the dreaded ‘R’ word mentioned with increasing frequency by American policymakers and economic soothsayers.

But the temperature in Singapore is notably lower. Local analysts are sitting tight on their forecasts – for both the US and Singapore – even with the hair-raising news out of America this week.

‘It’s looking darker undeniably,’ said Action Economics economist David Cohen. ‘But the situation hasn’t changed that dramatically either.’

Economists in Singapore said their colleagues in the US might be overreacting somewhat. Local experts are forecasting a slowdown but they want more evidence before making a recession call.

The mood in the world’s largest economy turned south dramatically in the past few days, with several global banks and former Fed chief Alan Greenspan issuing strongly bearish outlooks. Goldman Sachs, Standard Chartered Bank (Stanchart), Merrill Lynch and Morgan Stanley slashed their forecasts and joined Mr Greenspan in saying that the US is either in a recession or about to enter one.

Economists are expecting the US Federal Reserve to make deeper interest rate cuts, with Stanchart chief economist Gerard Lyons predicting that the benchmark rate could go as low as 1 per cent.

On the fiscal front, a US$100 billion (S$143 billion) stimulus plan, which will likely include tax rebates, is being put together by Democratic leaders in the US House of Representatives.

The surge in pessimism has been triggered largely by surprisingly weak labour and retail data. A jump in unemployment last month and a slide in holiday sales are being seen as signals that the era of the irrepressible US consumer is coming to an end.

Especially worrying were poor sales of luxury cars and premium jewellery, suggesting that even affluent Americans are tightening their belts.

Meanwhile, more big write-downs on sub-prime mortgage losses by US banks, led by Citigroup on Monday, will do little for the already shaken banking sector in the West. The gloomy sentiment has sent global investors into a frenzy with stock markets slumping and gold prices surging as safety is sought in these uncertain times.

‘Market prices tend to overreact to fluctuations in economic data,’ said Mr Cohen, who maintains that the US could still grow by about 2 per cent this year.

He said the figures may not be as bad as they are made out to be. For instance, the weak December will not derail fourth-quarter retail sales from a 2 per cent expansion.

CIMB-GK economist Song Seng Wun said that while US household spending will moderate, American firms are doing well generally, tourists are taking advantage of the cheap US dollar and an election year will provide extra jobs for many.

Analysts in Singapore said the sharp reactions in the West may be caused by the economists there being too close to the battle.

Some suggested that dramatic calls may have been made to hog headlines while others said an element of overcompensation could be in play after previously ‘sticking their heads in the sand’.

Indeed, United Overseas Bank economist Thomas Lam said he had anticipated last May that the US was headed for a slowdown and flagged the possibility of Fed rate cuts against a sea of predictions for inflation busting rate hikes.

Economists said a sharper slowdown in the US will hurt growth in Singapore but the effect will be cushioned by expected resilient growth in China and the region’s rising affluence, which should keep tourism humming.


Source: The Straits Times 17 Jan 08

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