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DBS has cut its 2015 GDP growth forecast to 3.2 per cent from 3.6 per cent, amid concerns about a volatile year ahead - with possibly divergent monetary policies across key central banks worldwide.
This would have a significant impact on financial markets, said DBS economist Irvin Seah in a research report. "Interest rate expectations will fluctuate and currencies will be volatile. Perhaps the only upside for the global economy next year is the lower oil prices. The confluence of factors will consequently have ripple effects on economic activities. Being a small and open economy, Singapore will be like a small boat in rough seas."
His latest estimate is lower than the median forecast of 24 private-sector economists polled by Bloomberg, which stands at 3.35 per cent. Other economists from UOB, Citi, and Bank of America Merrill Lynch anticipate 2015 GDP growth to come in at 3.3 per cent, 3 per cent, and 2.8 per cent respectively. These estimates are still within the government's forecast range of 2-4 per cent growth in 2015.
Apart from the fact that restructuring and stricter foreign worker policies will continue to constrain growth at home, Bank of America Merrill Lynch's Chua Hak Bin also sees "divergent cross-currents" in Asia next year affecting Singapore's economic outlook. He says this is in part due to "unsynchronised global forces" - where global growth is US-led, while the recovery in Europe and Japan is sluggish.
Said Dr Chua: "First, growth will diverge with China's slower 'new normal' growth against recoveries under the 'new governments' in India and Indonesia. Second, monetary policies will diverge with easing in China and India versus modest tightening in several Southeast Asian countries (Philippines, Malaysia, Indonesia, and Thailand)."
Even Citi's lower-than-consensus 2015 GDP forecast of 3 per cent faces downside risks from both external and domestic headwinds. For one, with lacklustre demand elsewhere, export prospects increasingly hinge only on a recovery in US capital expenditure; clusters linked to the global oil supply chain may also be hit by lower oil prices.
"Dampened activity in the housing market could shave up to half of a percentage point off GDP growth, and construction is starting to feel the chill of the housing downturn, exacerbated by labour supply constraints and plateauing productivity levels. Home-equity erosion, household deleveraging, and slower population growth may weigh on private consumption, despite wage increases," said Citi economists Kit Wei Zheng and Yap Kim Leng.
On a more sanguine note, however, DBS economist David Carbon thinks it's possible that Singapore's productivity growth "may be a lot higher than it looks".
Explaining his contrarian view, Mr Carbon said: "Singapore's exports are faring identically with the rest of Asia. So if it has lost competitiveness - due to heightened business costs and an appreciating Singapore dollar - it must be making up for it in some other way. Productivity growth is the only thing that comes to mind."
Stressing the difficulty in measuring productivity growth in the short run, Mr Carbon added: "Nobody knows whether GDP growth is slow because productivity growth is slow, or whether productivity growth just looks slow because GDP is in the dumps for other reasons, for example, because the global economy is weak.
"Measuring productivity in the short run at the national level is like trying to measure the water in the bathtub while your four-year-old and new puppy are splashing around inside it. Good luck."