(SINGAPORE) Economic momentum may have fallen off a little more than expected in the last quarter, but economists say the underlying recovery in Singapore remains on track.

 

Indeed, with flash Q4 GDP data in hand, at least two forecasters yesterday jacked up their estimates of Singapore's 2010 full-year growth, adding to the market consensus that was already above the official forecast of 3 to 5 per cent growth.

 

In his New Year message last week, Prime Minister Lee Hsien Loong announced that the economy grew 3.5 per cent in Q4 for a full-year pace of minus 2.1 per cent. The last time the economy was in recession in 2001, the full-year GDP contraction was 2.4 per cent.

The 2009 Q4 pace amounts to, according to advance estimates from the Ministry of Trade and Industry yesterday, a 6.8 per cent quarter-on-quarter fall. That's a sharp pullback from the preceding two quarters' double-digit gains that signalled the economy's climb out of recession.

 

But economists yesterday largely shrugged off the latest dip as one caused primarily by the volatile pharmaceutical industry and not indicative of yet another plunge ahead, with some confident, too, that the final Q4 figures will be clear of red ink.

 

The flash Q4 data released yesterday - which show a 38 per cent quarter on-quarter (q-o-q) plunge in the manufacturing sector - are provisional numbers based only on October and November figures.

 

Barclays Capital's Leong Wai Ho, for one, believes that the final Q4 figures will show - 'on account of a resurgence in pharmaceuticals production in December' as well as a rise in stock prices - rather stronger manufacturing output and a small positive bounce in GDP, rather than a near-7 per cent q-o-q fall. And, along with upward revisions to the earlier quarters' numbers as well, the 2009 contraction will eventually prove to be a smaller 1.5 per cent, Mr Leong reckons.

 

Other economists also say Singapore's recent economic upswing, after three to four quarters in the red, is still on track, with the services leading the rebound in 2010.

 

'We see another technical recession as unlikely,' say Morgan Stanley's economists, describing the Q4 decline as simply payback for the strong sequential momentum in Q2 and Q3, and not 'symptomatic of renewed weakness'.

 

Furthermore, given the capital-intensive nature of the biomedical sector, a pharma correction will not have massive job market implications, they add.

 

Morgan Stanley also does not see a double-dip global recession on the cards, given the global policy support still in place. The financial company yesterday hiked its forecast of Singapore's 2010 GDP growth by one point to 5 per cent.

 

OCBC Bank economist Selena Ling also added two points to her forecast of Singapore's 2010 growth yesterday, to 6 per cent, joining a clutch of market estimates that are already well above the government's projection. She cited the 'sharper-than-expected turnaround in the services sector, and the global economic recovery story which is picking up steam' as factors behind her GDP upgrade.

 

Q4 saw a remarkable turnaround in the services sector, recording 3.7 per cent growth as most segments expanded, particularly the financial services, Ms Ling notes.

 

'This should bode well for 2010 growth,' she says. 'Services growth will be the key employment driver this year, given the opening of the two integrated resorts and brighter financial services prospects.'

 

Meanwhile, Citigroup economist Kit Wei Zheng - one of at least three economists looking at 6.5 per cent growth this year - believes that GDP growth will peak at near-10 per cent in the current quarter, before easing thereafter as base effects and policy stimuli fade.

 

Even if the pace of economic activity stays flat in Q1 - that is, zero sequential growth - the economy would still, thanks to the low base effect, notch up 6-7 per cent growth in the quarter, say Morgan Stanley's economists.

 

But with the economy out of recession, the focus ahead will be not so much on the growth numbers per se but on emerging issues such as inflation and medium-term challenges.