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The Singapore government expects the economy to grow faster this year as it sees strong growth momentum in the near term.
Friday, the Ministry of Trade and Industry said it expects the city-state's economy to grow at 4.5% to 6.5% this year. The government upgraded the estimate from the earlier 3% to 5% projection. In 2009, the economy shrank 2% in 2009, in line with the ministry's forecast for a decline of 2% to 2.5%.
Real gross domestic product expanded 4% on an annual basis in the fourth quarter of 2009, after growing 0.6% in the previous three months. On a seasonally adjusted quarter-on-quarter annualised basis, GDP contracted 2.8% in the fourth quarter of 2009.
"The V-shaped recovery has come to an end in Singapore," economists at DBS Bank said. That said, economists do not see a double-dip recession for the city-state economy.
The services sector grew at a pace of 6.6% on a seasonally adjusted quarter-on-quarter annualised basis in the fourth quarter, down from 8.2% in the third quarter. The construction sector picked up by expanding 16.4% compared to 3.8% in the third quarter. Meanwhile, the manufacturing sector declined 29%, a reversal from the 25.6% expansion in the third quarter.
According to MTI, Asia is set to record a strong recovery in 2010. At the same time, the recovery in the G3 nations, is forecast to be weaker. The outlook for the second half of the year remains uncertain with private final demand in the G3 remaining weak. Also, weak labor markets, high levels of unused capacity and tight credit conditions are likely to dampen spending by households. Other downside risks include sovereign debt risks, especially in Europe and asset price inflation in Asia.
Capital Economics expects Singapore to move back into recession if the recoveries in the world's larger economies stall rather than slow. GDP will probably rise close to 10% year-on-year in the first quarter and second quarter, the firm said, before economic growth fades as the global recovery weakens and hits the trade-dependent sectors. Singapore's upswing is also expected to broaden-out to tourism and financial services.
Today, the MTI also revised its inflation estimate to 2% to 3% for 2010 from 2.5% to 3.5%. The report said this upward revision was attributable to the rebasing of the consumer price index to 2009, which resulted in changes to the weights of goods and services in the CPI, as well as to methodological improvements.
Elsewhere, the trade promotion agency International Enterprise Singapore projects total trade to grow between 9% and 11% in 2010, up from the previous forecast for a 7% to 9% expansion. Non-oil domestic exports are expected to grow 10% to 12%. Due to a better than expected trade performance in the fourth quarter of 2009, total trade in 2009 contracted 19%, which was better than the previous estimate.
The Finance Minister Tharman Shanmugaratnam is scheduled to present his FY 2010 Budget Statement in Parliament on February 22. The upward revision to the official growth forecast suggests it will be a growth-friendly budget, according to ING Bank NV. Further, lower inflation forecast reduces the likelihood of tightening by the Monetary Authority of Singapore in its April 2010 policy statement.
DBS Bank economist Irvin Seah forecast Singapore to incur a budget deficit this year as the government unveils another expansionary spending program to boost the nation's productivity. An overall deficit of S$5.5 billion or about 2% of gross domestic product is expected for fiscal year 2010.
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