The worst could be over- But rebound not yet in sight, as the outlook remains unclear in Western economies

17.02.2012

The general consensus is that the economy has bottomed out. The prospect of a rebound, however, remains fuzzy given the economic uncertainty in the West and the tensions between the United States and Iran.
Yesterday, the Ministry of Trade and Industry (MTI) said that, while a rebound in the Singapore economy is "not imminent", trade numbers for the first quarter of the year suggest that Singapore is not in danger of slipping into a recession.
This, even though Singapore's gross domestic product fell in the fourth quarter of last year, from 6-per-cent growth in the previous quarter to 3.6-per-cent growth. Seasonally-adjusted, the economy shrank 2.5 per cent.
MTI director Thia Jang Ping noted that January's trade and export numbers are "quite good". Dr Thia said: "It is still too early to call but our near-term indicators do not suggest an imminent danger of Singapore slipping very badly into a recession in the first quarter."
Agreeing, Barclays Capital senior regional economist Leong Wai Ho told Channel NewsAsia that "the possibility of another contraction remains remote in our view".
He said: "We're past the bottom of the mid-cycle slowdown and, if you look at indicators like industrial output, in terms of momentum, they've actually bottomed out in December."
Overall, the economy grew 4.9 per cent last year, following exceptional growth of 14.8 per cent in 2010. The MTI is maintaining its growth forecast of 1 to 3 per cent for the year.
MTI Permanent Secretary Ow Foong Pheng said at a media conference yesterday that the outlook remains "subdued and clouded with significant uncertainties".
Although the United States has shown signs of a pick-up, recovery will be undercut by public spending cuts and continued weakness in the housing market, the MTI said.
In the euro zone, the economy is expected to enter into a recession as "fiscal consolidation and bank deleveraging dampen private demand". In Asia, the major economies will probably see slower growth with external headwinds eroding export performance.
The MTI's forecast for the year does not take into account risks such as a "disorderly" sovereign debt default in the euro zone and oil price shock from worsening geopolitical tensions in the Middle East.
Said Ms Ow: "Should these risks materialise, Singapore's growth could come in lower than expected."
Tourism could provide "modest support" for the economy this year, said Ms Ow, citing the coming opening of new attractions such as the River Safari at the Singapore Zoo and the Marine Life Park at Resorts World Sentosa, and new facilities such as the Singapore International Cruise Terminal.
Tourism-related businesses accounted in part for the 4.4-per-cent growth in the services sector last year, along with strong growth in the finance and insurance businesses. Manufacturing saw growth of 7.6 per cent, thanks to a strong performance by the biomedical manufacturing cluster which offset poorer showings in other industries.
While tepid growth is expected this year, analysts Today spoke to said it is unlikely the Government will introduce generous measures to help businesses in its 2012 Budget, which will be unveiled this afternoon.
Said Bank of America Merrill Lynch economist Chua Hak Bin: "The hints are there, the Government will probably very much maintain the tight foreign worker policy, in spite of appeals from businesses ... and on the contrary, higher CPF (contributions from employers) for older workers is on the cards, raising business costs."
He expected the Budget to remain focused on strengthening social safety nets and helping vulnerable groups such as the elderly, while incentives for businesses will likely be aimed at raising productivity - which grew a dismal 1 per cent last year.
Mizuho Corporate Bank economist Vishnu Varathan cautioned against being too optimistic about the near-term signs of stabilisation.
"To give businesses an edge, we should look to how to lower costs and rentals, through incentives in the tax structure," he said, suggesting that there could be double tax write-offs for employers if CPF contributions for older workers are raised.