MAS survey forecasters pull back on 2014 growth

[SINGAPORE] Forecasters polled by Singapore's central bank expect the economy to expand by 3.8 per cent in 2014 - a less optimistic outlook compared to three months ago. However, some economists believe the Republic could chalk up stronger growth for the year, if major risk concerns are addressed.

Professional forecasters, polled by the Monetary Authority of Singapore (MAS) from late-February, have tempered their 2014 growth projections marginally by 0.1 percentage point, down from the 3.9 per cent median forecast seen in December's survey.

The slip was due to softer growth expectations for all sectors within the economy, except for the manufacturing sector.

Economists The Business Times spoke to said the slight downward revision was likely due to forecasters' concerns about China's shadow banking crisis, and a slower-than-expected recovery in the United States.

Said CIMB economist Song Seng Wun: "Forecasters were polled by MAS from Feb 20, so they would have been looking at January data at the time. There was some initial worry about China's growth momentum then - whether it was slowing down because of credit tightening or government policies. And we did witness a pull-back in activity in the US around then, too, and part of that was because of the cold weather they had been seeing."

Noting that some forecasters are "recalibrating their expectations", DBS's Irvin Seah agreed that economists might have been spooked by China's shadow banking problem, which could have indirect implications on Singapore.

He added: "Some of the weak data coming from the US recently has also suggested that the pace of recovery has not been as fast as what the market had earlier anticipated. I think these are the factors that are contributing to this modest downward adjustment."

UOB's Francis Tan, however, had a different take: "I think people's views on 2014 didn't really change. What drove the downtick in overall GDP was the higher-than-expected actual 2013 GDP numbers that came in - it's an arithmetic reason."

The Singapore economy grew 4.1 per cent in 2013, roundly beating market forecasts and the government's own estimate of 3.7 per cent.

"Because 2013 GDP turned out stronger than we anticipated, the base has become higher. So the lower growth rate reflected this time makes sense," added Mr Tan.

Regardless of the reason behind the lower median forecast, economists agree that 2014's GDP growth will likely exceed the 3.8 per cent estimate - if risk concerns are addressed.

Said Mr Song: "I think once we get beyond what's happening in Ukraine, and the adverse weather that has been affecting Q1 US growth, we should be on much more stable ground for better global growth momentum, especially in the second half of the year."

Mr Seah will also be looking to see whether risks in China remain contained, and if the US economy's gradual recovery keeps on track.

CIMB, UOB and DBS's full-year growth forecasts stand at 5 per cent, 4.3 per cent and 4 per cent, respectively. These estimates put growth at or beyond the highest end of the government's projection of 2-4 per cent.

But the path forward is not without hazards, cautioned economists.

OCBC's Selena Ling thinks labour-intensive services sectors - such as wholesale and retail trade - are "probably feeling the pinch" from the domestic manpower crunch.

Mr Tan agreed: "Even if global conditions get better and we expect greater revenue and business volumes, if companies can't even find people to work for them, it's going to be hard to satisfy the increase in demand. This is a major risk to my forecast."

Mr Seah also thinks that a moderation in manufacturing activity is on the cards, citing easing PMIs (purchasing managers' index) in the eurozone, US, and China. In addition, he thinks the global electronics cycle may have peaked, since the semiconductor book-to-bill ratio, which tracks demand levels, and global semiconductor sales, have moderated.

"While we do not expect the manufacturing sector to dip into contraction mode, the growth pace in the coming months is expected to be tepid," said Mr Seah.

For the first quarter of 2014, forecasters are now expecting lower growth of 5.3 per cent. This fell from the previous median forecast of 5.5 per cent.

For 2015, respondents project GDP growth to reach 3.8 per cent, while headline inflation and core inflation are projected to come in at 2.6 per cent and 2.4 per cent respectively.