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Economists again cut forecast for Singapore's 2016 GDP growth

MAS poll shows a drop to 1.9% as a bigger contraction in manufacturing and slower growth in finance & insurance are factored in

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Pencilling in a deeper-than-thought manufacturing contraction and a slowdown in finance and insurance, Singapore's private-sector economists have again pared their growth expectations for 2016.


Pencilling in a deeper-than-thought manufacturing contraction and a slowdown in finance and insurance, Singapore's private-sector economists have again pared their growth expectations for 2016.

They now expect the economy to expand 1.9 per cent this year - down from their projection of 2.2 per cent a quarter ago, a quarterly poll of professional forecasters by the Monetary Authority of Singapore (MAS) has found.

However, they believe better fortunes await in 2017, and estimate that gross domestic product growth at 2.5 per cent next year.

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The figure is a far cry from the growth rates Singapore has historically been used to; it is also on the lower end of the government's 2 to 4 per cent forecast for the rest of the decade.

Mizuho economist Vishnu Varathan told The Business Times: "It's a less downbeat number (than the projection for 2016), but I'm not going to call it 'upbeat' because 2.5 per cent growth is still sub-trend. And that's what we have to bear in mind."

He referred to this and next year's growth estimates as "an ugly sister contest".

The 2016 median forecast takes into account a deeper-than-thought contraction in the manufacturing sector of 2.7 per cent (versus -1.2 per cent earlier), and slower growth in the finance and insurance sector of 3.6 per cent (compared with 5.9 per cent).

The trimming of forecasts did not surprise UOB economist Francis Tan. "Since the previous survey, the indicators surrounding manufacturing and inflation haven't been all that optimistic. Plus, MAS lowered their 2016 headline inflation forecast - all these things weigh on expectations for the whole year," he said.

The latest edition of the central bank's quarterly poll was sent out on Feb 24, and received views from 24 respondents.

But not all segments of the economy are expected to fare worse than previously anticipated. Construction as well as accommodation and food services growth is now forecast at 2.6 per cent and 1.6 per cent respectively (compared with 1.2 per cent and 0.8 per cent before).

Respondents continue to forecast the unemployment rate to be at 2.1 per cent by year-end.

On the inflation front, economists pared down their forecasts too. In the December survey, 2016 headline inflation was expected at 0.5 per cent; it is now projected to come in at -0.2 per cent.

This is within the government's full-year inflation forecast of -1 to 0 per cent - itself a step down from the previous official estimate of -0.5 to 0.5 per cent.

But Credit Suisse economist Michael Wan thinks the private sector's inflation expectations are "still too optimistic", and that further cuts are bound to happen. "To be fair, there's a lot of variability, depending on your oil forecast assumption," he said.

Respondents also expect this year's core inflation - which strips out the costs of accommodation and private road transport - at 0.8 per cent (versus one per cent a quarter ago). For 2017, economists expect headline to come in at one per cent and core inflation, at 1.5 per cent.

Even with subdued growth, Mizuho's Mr Varathan cast doubt on the idea that governments should spend significantly more to give the economy a boost.

He said: "In Singapore's case, I think wherever spending is required, it will be there. But we cannot ramp up too much because we will hit resource and capacity constraints.

"The other thing about fiscal stimulus is that we don't want to artificially prop up firms that are otherwise not viable. We have to bear in mind that slow growth doesn't absolve you of the risk of misallocation - if anything, I think it accentuates it."


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