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MAS poll: 2014 GDP growth cut to 3.3%

Weaker Q2 brings down full-year forecast; further downgrades seen
Thursday, September 11, 2014 - 06:00
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Economy watchers polled by Singapore's central bank have cut their 2014 growth forecast to 3.3 per cent, following a disappointing second quarter - PHOTO: ST

[SINGAPORE] Economy watchers polled by Singapore's central bank have cut their 2014 growth forecast to 3.3 per cent, following a disappointing second quarter. But some economists warn that more downgrades could still come in, as the Republic grapples with restructuring pains amid a patchy global recovery.

Professional forecasters, polled by the Monetary Authority of Singapore (MAS) from mid-August, have tempered their full-year growth projections by half of a percentage point, down from the 3.8 per cent median forecast seen in June's survey. The lower 2014 growth estimate now falls within the government's forecast range of 2.5-3.5 per cent.

Said Bank of America Merrill Lynch economist Chua Hak Bin: "I think the downgrades shouldn't come as a surprise, because a weaker Q2 basically brought down the full-year forecast. They key thing now is whether we'll see the economy pick up steam, or whether the sluggish growth will be a bit more persistent and structural in nature."

The slip in forecasters' optimism was due to softer growth expectations for all sectors within the Singapore economy, except for the finance & insurance segment, where growth projections have been kept intact at 5.5 per cent.

The manufacturing sector is now expected to grow at a slower pace of 4.2 per cent compared to June's estimate of 5.6 per cent, and wholesale & retail trade growth is projected at 2.6 per cent, much lower than the 4.9 per cent previously forecast.

Non-oil domestic exports (NODX) are projected to contract 1.1 per cent, in stark contrast to June's expectations of a 4.1 per cent expansion. The sharp pull-back in sentiment follows year-on-year contractions in both June and July.

Even as the market trimmed its full-year GDP growth forecast, economists The Business Times spoke to stressed that further downgrades could still happen. Dr Chua and DBS economist Irvin Seah estimate 2014 growth at 3 per cent - lower than the survey's median forecast of 3.3 per cent - while CIMB economist Song Seng Wun thinks increased geopolitical risks and "seesawing" regional macroeconomic data add to the uncertain outlook.

Said Dr Chua: "The data coming out of Europe and Japan has generally been on the soft side, so it's not like you have this story of the US recovery supporting a global recovery that's synchronised with an Asian exports recovery. It's all still very patchy - one month it's decent, another month things pull back ... Our view is that the recovery has been somewhat uneven and even elusive in certain countries. And in Singapore, the impact is going to be compounded by the fact that we're undergoing restructuring."

Added Mr Seah: "Some analysts are still hanging on to a thread of hope that we'll see some acceleration in the second half, but this thread is just getting weaker. I think that even if we get an acceleration, it's going to be a very gradual one. There are still downside risks from both external and domestic perspectives."

Externally, these include a stagnant Eurozone economy, lacklustre consumption and investment figures in Japan, and a dicey manufacturing outlook in China. Domestically, economists are wary of climbing business costs amid a tight labour market.

One consolation from MAS's latest quarterly survey is that forecasters have lowered their 2014 inflation projections from three months ago.

Their full-year inflation forecast is now 1.8 per cent versus 2.2 per cent previously; MAS core inflation - which strips out accommodation and private transport costs - is expected at 2.2 per cent, also lower than the 2.4 per cent reported in June's survey.

These projections are within the range of the government's 1.5-2 per cent forecast for headline inflation, and 2-3 per cent for core inflation.

The MAS also said in its "Recent economic developments in Singapore" article last week that it expects domestic cost pressures - particularly stemming from a tight labour market - to continue to be the primary source of inflation.

For the third quarter of 2014, forecasters are now expecting lower growth of 3.2 per cent. This fell from the previous median forecast of 3.5 per cent.

But respondents are expecting economic activity to increase next year, as they think GDP growth will reach 3.7 per cent. This is still down, however, from the June survey's forecast of 3.9 per cent.

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