Second-quarter growth falls sharply to 1.9%

July 11, 2008

Second-quarter growth falls sharply to 1.9%

Economists cut full-year forecasts after dismal flash estimate

By Alvin Foo

ECONOMISTS have pared their forecasts for the year after growth in the second quarter suffered its biggest contraction in five years.

Estimates have been reined in from the 5.5 per cent or more tipped early this year to as low as 3.5 per cent as analysts come to grips with yesterday's shock numbers.

The economy grew at just 1.9 per cent year-on-year in the second quarter, well down on first-quarter growth of 6.9 per cent, according to flash estimates from the Trade and Industry Ministry (MTI).

'The slowdown chiefly reflected a sharp contraction in biomedical manufacturing output,' said the MTI. Its estimates are culled largely from data in the first two months of the April-June quarter and serve as an early indicator of growth.

The downbeat estimates stunned many economists, who responded by lowering their forecasts for this year and even 2009.

United Overseas Bank has trimmed its full-year forecast to 4.7 per cent and 5 per cent in 2009. It cited 'weaker-than-expected second- quarter figures, the vulnerability of Singapore's open economy to an external slowdown (and) the impact of a strong Singdollar on exports'.

CIMB-GK economist Song Seng Wun has cut his 2008 growth forecast from 5.7 per cent to 4.6 per cent.

Hong Kong-based Sun Mingchun of Lehman Brothers said: 'We expect GDP growth to slow sharply to 4.3 per cent in 2008 from 7.7 per cent in 2007.'

Standard Chartered's Alvin Liew, who had earlier predicted growth of 4.5 per cent, has slashed his forecast to just 3.5 per cent.

There may not be much help coming from the region either, with economists expecting other Asian countries to report plunging second-quarter figures soon.

Mr Sun said: 'As the smallest and most open economy in the region - and also the first to report second- quarter GDP - Singapore is likely the one being hit first by the global economic slowdown.'

But not all economists are paring their forecasts.

HSBC's Robert Prior-Wandesforde still tips growth at 5.8 per cent - at the upper end of the Government's 4-6 per cent forecast range.

And Mr Leong Wai Ho of Barclays Capital has retained his 5.2 per cent prediction.

Mr Leong believes the manufacturing sector will spur fourth-quarter growth when production of high-value drug ingredients resumes.

Not surprisingly, manufacturing was the chief culprit for the second-quarter slump, with the volatile pharmaceutical sector largely to blame.

Manufacturing output fell 5.6 per cent year-on-year after surging 12.7 per cent in the first quarter.

Economists say fluctuations in the pharmaceutical cluster, which accounts for about a fifth of total factory output, is unsurprising due to changing production cycles when firms shut factories to re-configure machinery.

Even the robust construction and service sectors saw slower growth.

Construction grew 15.2 per cent, down from 16.9 per cent in the first quarter, while services rose 6.9 per cent compared with 7.6 per cent in the previous quarter.

Economists say growth this year is likely to be driven mainly by the construction, offshore and marine and tourism sectors.

UOB said the likelihood of a technical recession - two consecutive quarters of negative growth - remains 'very low'. It expects a third-quarter rebound, driven by Formula One in September, strong construction growth and a possible manufacturing rebound.

alfoo@sph.com.sg



Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access