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Economists cut 2015 Singapore growth forecast to 2.2%

More downgrades likely, they say, as manufacturing remains a drag

Exterior of the Monetary Authority of Singapore building 18, Aug 2015


SINGAPORE'S forecasters have tempered both their growth and inflation forecasts for 2015 - and some say more downgrades are in store. This is especially after the latest manufacturing data deepened worries about a possible technical recession in the third quarter.

Private-sector economists now expect the economy to grow just 2.2 per cent this year - down from the 2.7 per cent projected a quarter ago. They are also more pessimistic on the outlook for the manufacturing and construction sectors, and most services clusters.

This is according to the Monetary Authority of Singapore's (MAS) September issue of its Survey of Professional Forecasters. The quarterly poll was sent out on Aug 11 and received 23 responses; findings were released on Wednesday.

"This survey was conducted prior to the recent slew of dismal August emerging market Asia PMIs (Purchasing Managers' Indices) . . . so growth risks are definitely skewed to the downside," said ANZ economist Ng Weiwen.

Like other depressed regional readings, both the manufacturing and electronics PMIs for Singapore slipped further into contraction mode in August, although the drops were not unexpected.

Overall PMI sank 0.4 point to 49.3, as new orders, new export orders, production output as well as input prices showed a further contraction. Private-sector economists polled by Bloomberg had earlier projected a reading of 49.4, down from July's 49.7.

A reading above 50 denotes growth, while one under 50 points to a contraction in the manufacturing sector.

The electronics PMI stayed below the 50-point mark in August as well, dropping 0.5 point to 49.0 - exactly at the market's forecast.

The electronics readings indicated a further decline in new orders from domestic and overseas markets. "Production output contracted further and inventory reverted to contraction after having moderated in the earlier month," said the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the index monthly from a survey of more than 150 manufacturing firms' purchasing managers.

Noted OCBC economist Selena Ling: "The weak August domestic manufacturing PMI readings are consistent with the recent global manufacturing PMI cues, which suggested that momentum is cooling again in Q3 and puts Singapore's manufacturing sector squarely in the sub-50 PMI camp together with China, Taiwan, South Korea, Malaysia and Indonesia.

"As such, the drag from the dismal July industrial production data may extend into August, even September, which in turn could raise the odds for a technical recession in Q3 - should the other engines of growth, namely services, also falter amid the ongoing pullback in consumer and business sentiments due to China and FOMC-related (US Federal Open Market Committee-related) uncertainties."

August's gloomy PMI readings provided more evidence for a worsening economic outlook, which was reflected by professional forecasters in MAS's September poll. For Q3, respondents expect gross domestic product (GDP) to expand 2.1 per cent - a significant drop from the 2.9 per cent forecast in the June survey.

Manufacturing is now expected to contract 2.7 per cent this year, compared to an earlier projection of 0.5 per cent growth. Growth forecasts in the construction and finance & insurance sectors have also been cut, to 2.3 per cent and 6.6 per cent respectively (from 3.3 per cent and 7 per cent before). Accommodation & food services is expected to contract -0.1 per cent, versus an earlier projection of 1 per cent growth.

The only spot of optimism was reserved for the wholesale & retail trade sector, which is now expected to grow 4.8 per cent, up from the 3.3 per cent quoted in the June survey. Even so, CIMB Private Banking economist Song Seng Wun said: "I think forecasters were just overly-pessimistic on wholesale & retail trade previously, and they're now re-aligning their projections - it's not that anything has improved."

At 2.2 per cent, private-sector economists' full-year growth projection falls within the government's forecast. According to the Ministry of Trade and Industry (MTI), the Singapore economy should expand between 2 and 2.5 per cent in 2015 - a narrowed forecast from its previous 2-4 per cent projection.

But Mr Song, Mr Ng and DBS economist Irvin Seah believe the market's 2015 growth projection will likely be pared down further in the near future.

"The 2.2 per cent figure shows that the market is not factoring in the possibility of a technical recession yet. If that is factored in, the projection would have to be below 2 per cent - that would translate into a quarter- on-quarter contraction," said Mr Seah.

"Do not discount the possibility that (full-year growth) may even fall below the official forecast range, because I think the drag from the manufacturing sector is becoming more and more severe. There will also be the knock-on effect from manufacturing to other tradeable services."

As for 2016 growth, respondents expect the economy to expand 2.8 per cent.