AFTER two straight quarters of strong growth, Singapore's economy looks likely to have hit a speed bump in the fourth quarter of this year, according to economists.

A surprise slump in the volatile biomedicals segment resulted in manufacturers producing less than expected between September and this month - possibly leading to zero or minimal economic growth over the period.

Despite this flat fourth quarter, the economy will still have grown compared with its unusually weak showing during the same period last year, when the onset of the financial crisis pushed both manufacturing and services deep into the red.

Year-on-year growth is slated to come in anywhere between 2 per cent and 5 per cent, economists forecast.

Their predictions come ahead of Monday's official fourth-quarter growth estimates, based mainly on data from October and last month. Final figures for the quarter are not expected until February.

Mr David Cohen, an economist at Action Economics, expects the economy to lose steam in the fourth quarter after growing strongly in the preceding two quarters.

It soared quarter-on-quarter by 21.7 per cent in the second quarter and by 14.2 per cent in the third quarter.

But for the fourth quarter, the number 'will probably be flat', because of the dip in manufacturing output in October and last month. Production dropped 6.7 per cent in October and 3.6 per cent last month, compared with the respective previous months.

Citigroup economist Kit Wei Zheng predicted that any setback in growth is likely to be temporary, given that the underlying factors supporting a sustained recovery remain strong.

He added that without the plunge in biomedicals output, manufacturing production in October and last month would actually have expanded, led by double-digit growth in electronics.

This is a welcome reversal from previous quarters, where sharp jumps in biomedicals have made the overall economy look like it was faring better than it actually was.

Manufacturing aside, services are also likely to have grown in the fourth quarter, led by tourist arrivals and trade-related services, said Mr Kit.

More visitors arrived here last month than in any other month of the year and hotel occupancy rates are at levels not seen since July last year, he said.

This is likely to bode well for next year, when rebounding exports, 'a modest investment recovery and the opening of the integrated resorts in the first half of 2010' will combine to boost commerce.

Mr Kit predicts that the economy will grow by 6.5 per cent next year, peaking in the first quarter with growth of about 10 per cent, before moderating in the second half of the year.

But such growth hinges on whether the global economic recovery is sustained, said Mr Cohen, who is tipping 5.5 per cent expansion next year.

'So far, things are encouraging - data from around the world shows that the pick-up is continuing into the fourth quarter,' he added.

But Credit Suisse economist Joseph Tan foresees a 'challenging' second half next year, when the low-base effects wear off after June.

Inflation could also stage a comeback, he said, making it a major risk for Singapore next year.

Property values and commodity prices have run up, while borrowing rates remain low, keeping liquidity conditions loose.

This will present difficulties to the economy if Singapore's main export markets of the United States and Europe experience a slow recovery, dragging down the recovery, said Mr Tan.

The authorities could be then faced with a dilemma: Pursue growth or temper asset price inflation.

fiochan@sph.com.sg
 

A surprise slump in the volatile biomedicals segment meant that manufacturers produced less than expected in the quarter, which may have led to zero or minimal economic growth between September and this month.