Pensword Capital

SINGAPORE expects its economy to soar as much as 15 per cent this year after record expansion in the second quarter, making it possibly the world's fastest-growing economy this year.

The Ministry of Trade and Industry (MTI) yesterday sharply revised the country's annual economic- growth forecast to a sizzling 13-15 per cent.

This new estimate - adjusted upwards for the third time this year - is double MTI's previous prediction of 7-9 per cent year-on-year expansion, and would mean that the country would beat even regional powerhouses China and India in growth.

China is expected to post 10 per cent growth this year, while it is predicted that India will grow by 8.5 per cent.

Advance estimates for the second quarter have also indicated that Singapore's economy continued to expand strongly. Real gross domestic product (GDP) is expected to grow by a new all-time high of 19.3 per cent, compared to the same period last year.

In its report, the MTI pointed to two specific reasons for the updated growth forecast - better-than-predicted economic performance in the first quarter of the year, and stronger-than-expected growth in the second quarter. MTI said that, according to the latest official data, Singapore's economy in the first quarter actually expanded by 16.9 per cent on a year-on-year basis - a record-high rate.

This was 1.4 percentage point higher than the growth rate initially estimated in May.

The boost was specifically due to the surprisingly grand performance of the biomedical manufacturing cluster.

Once again, the manufacturing sector looks set to be the backbone for the high growth, with an estimated outstanding 45.5 per cent year-on-year surge.

Meanwhile, a rise in public sector construction activities has given the sector a boost, with an estimated 13.5 per cent year-on-year growth in the second quarter.

The services-producing industries are expected to have expanded by 11.4 per cent year-on-year, compared to an increase of 11.2 per cent in the first quarter.

Still, MTI cautioned that it anticipated a slowdown in Singapore's growth momentum during the rest of the year.

It highlighted that the pace of the global economy recovery has ebbed.

"The sluggish final demand in the United States and European Union has moderated industrial activities and lowered expectations for manufacturing output in the Asian economies," it said.

However, Singapore's non-oil domestic exports (NODX) for last month surprised positively.

The figures, which were released yesterday as well, showed that NODX accelerated to 29 per cent year-on-year.

Nonetheless, this momentum is predicted to slow.

Said UOB economist Chow Penn Nee: "We are still forecasting weakness in exports, which will likely show up in the later months."

MTI added: "There will also be industry-specific factors, such as plant-maintenance shutdowns in the biomedical-manufacturing cluster, which will drag down growth.

"Thus, while year-on-year growth rates in the second half will be healthy, sequential growth from current levels of economic activity will be low."

One notable lack of mention in the latest official GDP report, however, was that of inflation.

This is despite MTI's earlier warning in May on continual concerns over excessive asset price inflation in emerging Asia.

Economists hence speculate that the inflation concerns may have been temporarily put on the backburner.

"The generally benign inflationary environment has to be perceived in the context of the two-speed global economy today, split between the fiscally challenged developed economies and the resilient emerging economies," said OCBC's head of Treasury Research and Strategy, Ms Selena Ling.

"Crude-oil prices remain contained below US$80 (S$111) per barrel today on lingering double- dip growth fears, and there is little impetus for commodity prices to re-test the pre-crisis highs that we saw earlier."

On the monetary-policy front, economists said they are maintaining their view that the Monetary Authority of Singapore will not change its current policy stance in the upcoming October review.

The Singapore dollar is expected to strengthen further.

"This is especially in the light of the domestic growth momentum, although there will still be volatility interspersed as the euro- zone sovereign issues remain unresolved," said Ms Chow.

"We see the USD/SGD going to around 1.36 by year-end, as the economic fundamentals in this region give rise to further inflows here."

As for economists' growth forecasts, Citibank has upgraded its estimate to 15.5 per cent, OCBC to 14 per cent, and UOB to 13.8 per cent.

reicow@sph.com.sg