Optimism on the rise: MAS survey

Forecasters point to outlook in industry, trade

[SINGAPORE] Things are looking as good as they can get, for now: Growth projections are up, inflation forecasts are down, and economists are more optimistic about the Singapore economy than they were three months ago.

Professional forecasters, polled by the Monetary Authority of Singapore from late-November, now expect the Republic's economy to expand by 3.8 per cent in 2013 - up from the 2.9 per cent median forecast seen in September's survey.

This puts growth just above the mid-point of the government's projection of 3.5-4 per cent, which was raised last month from an earlier forecast of 2.5-3.5 per cent.

Noting how that itself was the product of another upward revision in August, economists told The Business Times that it is unsurprising that forecasters are now even more optimistic, given the recent upturn seen in manufacturing.

Said DBS economist Irvin Seah: "It's likely the market was overly cautious earlier this year, because pessimism from a bad 2012 might have spilled over... But lately we've seen external demand pick up. September was the turning point, where manufacturing indicators really did much better than expected."

Indeed, surprise and hearty showings in key economic indicators - like the purchasing managers' index and industrial production - have laid the foundation for more sanguine expectations.

Just last month, another double-digit (22.8 per cent) jump in electronics output boosted Singapore's manufacturing performance in October; this built upon September's robust showing, which had already exceeded expectations.

Said Barclays economist Joey Chew: "Mathematically, forecasters are following in line with higher growth numbers that came out for Q3. Logically, as well, I think this is supported by the fact that global indicators have been holding up pretty well - especially the purchasing managers' index (PMI) in the US."

The forecasters' upgrade for 2013 was led by rosier outlooks for the manufacturing and the wholesale and retail trade sectors. The former is now expected to grow 1.4 per cent, up from just 0.2 per cent in the previous survey; the latter is expected to rise 5.3 per cent, higher than the 3.3 per cent in September's poll.

Non-oil domestic exports (NODX), however, are expected to contract more sharply by 3.9 per cent this year, compared to a 0.7 per cent contraction in the previous poll.

Sluggish domestic exports for much of the year prompted a hefty downgrade last month in Singapore's official NODX growth forecast - a contraction of 4-5 per cent is now expected this year, from an earlier projection of a zero to 1 per cent fall.

On the inflation front, the 21 private-sector economists and analysts who responded to the central bank's quarterly survey believe headline inflation will edge down to 2.4 per cent this year, compared to the 2.5 per cent reported in the earlier poll.

"It's been a good year in that growth has surprised on the upside, while inflation has surprised on the downside," said Bank of America Merrill Lynch economist Chua Hak Bin, noting that the 2.4 per cent figure is even lower than the official forecast range of 2.5-3 per cent.

Added Ms Chew: "So far it's been more moderate than we expected, so it looks like inflation expectations have been pushed back for now. But it's only a matter of time (before inflation picks up), given (the economy's) stronger growth and tight labour market."

Indeed, moving into 2014, forecasters expect headline inflation to head northwards to come in at 2.8 per cent, and core inflation at 2.3 per cent.

Added Mr Seah: "I think inflation is going to pick up to above 3 per cent, and it's just a matter of how high it will be. March will also show us how the (new certificate of entitlement) recategorisation will affect (car) prices."

As for next year's growth prospects, forecasters expect the Singapore economy to expand by 3.9 per cent in 2014, even as they flag regional emerging market risks with the prospect of quantitative easing tapering off in the US.

Economists also pointed to ongoing shifts in neighbouring countries, such as the recent political unrest in Thailand, Indonesia's upcoming elections, and Malaysia's fiscal consolidation.

Said Mr Chua: "Compared to where we were 12 months ago - when our neighbourhood was in a stronger place and countries outside Asean were softer - now Asean is a bit more sketchy while the US, Europe, and Japan are looking firmer."

An improvement in global sentiment may not automatically provide a substantial lift to Singapore, either: "Even if global demand picks up, can Singapore capitalise on the upswing as it has historically? Given existing labour constraints, it's unclear whether firms will be able to take advantage of that, even if demand improves," added Mr Chua.

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