(SINGAPORE) Singapore's economic growth is expected to slow sharply to just 1-3 per cent next year and could stall if the world's advanced economies slide into recession, the government warned yesterday.
That gloomy projection is lower than many economists' current forecasts and below the 3-5 per cent that the government sees as Singapore's potential growth rate.
The Republic's economy grew by 6.1 per cent year-on-year in the third quarter, faster than the 5.9 per cent estimated last month.
Compared to the previous quarter, economic output in Q3 grew at an annualised pace of 1.9 per cent, adjusted for seasonal variation, faster than the initial estimate of 1.3 per cent.
But economic output is expected to shrink sequentially in the fourth quarter, hurt by persistently weak demand for Singapore's exports, Ow Foong Pheng, permanent secretary at the Ministry of Trade and Industry (MTI), told reporters yesterday. 'The fourth quarter will continue to be tough for the economy. We expect the externally oriented sectors to remain weak for the rest of the year.'
Full-year growth for 2011 is expected to be around 5 per cent, unchanged from the official forecast last month, Ms Ow said.
The growth outlook for 2012 is 'more subdued', she added. 'External demand is expected to remain sluggish. Developed economies are undergoing fiscal consolidation and the banking sector in the European Union may need further capital injections.'
And short-term economic indicators such as the composite leading index and the purchasing managers' index show no sign of an impending rebound, she said.
The forecast of 1-3 per cent growth next year is based on the external weaknesses that are currently known, she stressed. 'Should a recession or a full-blown financial crisis in the advanced economies occur, growth could come in lower.'
Late last month, Prime Minister Lee Hsien Loong warned that Singapore had to prepare itself for 'a period of several years of difficulty in the global economy', adding that growth of 3-4 per cent a year for Singapore in future would be 'not bad'.
The dismal tone from government officials has prompted private-sector economists to trim their own growth forecasts.
Citigroup economist Kit Wei Zheng said that he now expects the economy to expand by just 5 per cent this year and 3 per cent in 2012, down from his earlier forecasts of 5.3 per cent and 3.3 per cent, respectively.
Still, yesterday's data showed that the main engines of Singapore's economy fared better than expected in the three months to Sept 30.
The services-producing industries, which account for about three-fifths of Singapore's gross domestic product (GDP), grew 3.7 per cent year on year in Q3, slightly above last month's advance estimate of 3.6 per cent. Services activity shrank by an annualised 0.6 per cent compared to Q2, as activity in wholesale and retail trade, transport and storage, hotels and restaurants, and other services industries declined. That's slightly better than the annualised 0.7 per cent contraction estimated last month.
The manufacturing sector, which makes up about a quarter of Singapore's GDP, expanded by 14.2 per cent year-on-year in Q3, an upward revision from the 13.2 per cent growth estimated earlier. Compared to the previous quarter, manufacturing output grew at an annualised 11.7 per cent, against the earlier estimate of 8.9 per cent.
But the growth was largely due to a rebound in biomedical manufacturing output, which is expected to see a pullback in growth in Q4, MTI said. Electronics output is also expected to fall further, dragging down overall manufacturing growth.
'Electronics output continues to be sluggish, with no upturn seen yet,' said United Overseas Bank economist Chow Penn Nee. 'The same story is likely to continue into next year, as difficulties in the developed economies prevail, weighing on demand for Singapore's exports.
'For 2012, we're looking at full-year growth likely coming in at 2.5 per cent, with the domestic economy impacted by the fall in external demand, as well as reduced growth from the slower inflow of foreign labour.'