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MAS poll: 2015 GDP growth cut to 2.8%

Lowered forecast still in line with official growth estimate range of 2-4%
Thursday, March 19, 2015 - 05:50
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Just three months into 2015, forecasters are already cutting back their expectations for full-year growth.

Singapore

JUST three months into 2015, forecasters are already cutting back their expectations for full-year growth. Those polled by the Monetary Authority of Singapore (MAS) in February now expect the Singapore economy to expand 2.8 per cent this year - lower than their earlier projection of 3.1 per cent.

Even so, although private-sector economists are less optimistic than they were a quarter ago, their lowered median forecast is still within the official projection range of 2 to 4 per cent GDP growth.

Credit Suisse economist Michael Wan told The Business Times: "The poll basically reflects what we already know - that the near-term outlook is pretty weak. We've already seen it from (various key economic indicators): exports, industrial production and retail sales have pretty much all disappointed across the board. So that's probably part of the reason behind the tempering of expectations."

While a 0.3 percentage point decrease in the full-year GDP growth projection may not sound like much, Mizuho economist Vishnu Varathan said that the breakdown by sectors is revealing. "It does show some renewed concern about manufacturing, particularly given that I think people are not impressed with how global trade is picking up. We can see signs of weakness in China, and our latest NODX (non-oil domestic exports) were disappointing as well. I think that's where some of the manufacturing drag is coming from."

Indeed, the slip was due in part to softer growth expectations in the manufacturing and construction sectors; these are now expected to grow 1.8 per cent and 2 per cent respectively, down from an earlier projection of 3 per cent and 3.1 per cent respectively.

Non-oil domestic exports are also projected to expand at a slightly slower pace of 1.6 per cent in 2015, down from 1.8 per cent in December's survey.

However, some lift is seen for the finance & insurance sector. The 21 private-sector economists and analysts who responded to MAS's quarterly survey now see the sector growing 7.5 per cent in 2015 - one percentage point higher than the earlier forecast of 6.5 per cent.

Said Bank of America Merrill Lynch economist Chua Hak Bin: "That reflects the same engines of growth that we saw last year. Manufacturing continues to falter, and growth will still be largely services-driven.

"The risk for growth seems to be on the downside, though. Bear in mind that this survey was conducted before the recent February export numbers, and could have even been before the January industrial production figures. Both of these and the purchasing managers' index (PMI) have surprised on the downside . . . So unless February industrial production really springs a surprise, I think (economists) will have to slash their forecasts again."

For the first quarter of 2015, forecasters are now expecting lower growth of 2 per cent - a downgrade from the previous median forecast of 2.5 per cent.

As for 2016, respondents expect GDP growth to reach 3.1 per cent, while headline inflation and core inflation are projected to come in at 1.3 per cent and 1.9 per cent respectively.

On the prices front, expectations for full-year inflation and core inflation dropped sharply as well - to 0.1 per cent from 1.1 per cent for the former, and to one per cent from 1.9 per cent for the latter. These new estimates are within the range of the government's -0.5 to 0.5 per cent headline inflation forecast, and 0.5 to 1.5 per cent core inflation projection.

With inflation risks looking muted, economists are mixed on whether Singapore's central bank will ease monetary policy further, come its next meeting in April.

On the one hand, Dr Chua and Mr Wan think a downward re-centring of the S$NEER (Singapore dollar nominal effective exchange rate) policy band is likely, citing a weaker-than-expected inflation outlook.

But Mr Varathan thinks that MAS "by and large factored this in" when it unexpectedly eased monetary policy and shifted inflation forecasts significantly lower on Jan 28, on the back of a sharp drop in global oil prices.

"I'm still inclined to say that MAS has already moved pre-emptively and frontloaded the move. So there is no necessity to react all over again in April."

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