(SINGAPORE) With 2011 just a month away, several economists have raised their growth forecasts for the Singapore economy next year - to beyond the official forecast range in some cases.
Coming to the fore as a prime driver of this growth will be the services sector, even as the challenges of managing inflation and capital inflows persist.
'Services will overtake the manufacturing sector in 2011 as the key contributor to growth,' said DBS economist Irvin Seah in a note yesterday. His latest forecast of 7 per cent 2011 growth surpasses most market estimates and the official range. The Ministry of Trade and Industry is now looking at 4 to 6 per cent growth for 2011, which will be a sharp moderation from this year's record recovery but stays above the economy's estimated underlying growth potential of 3-5 per cent.
Citi economist Kit Wei Zheng, too, lifted his growth forecasts for 2010 and 2011 yesterday to 15 and 5.5 per cent respectively, prompted by recent positive surprises in manufacturing and export numbers.
Services linked to regional demand should stay resilient, said Mr Kit, who thinks the 'lift from China and Asian domestic demand may be felt less from trade in goods and more from trade in tradeable services'. Singapore's hub status lends it strong comparative advantages in travel, financial and transport services, he said.
Robust services growth will be led by tourism-related activities and the 'other services' segment which captures the two integrated resorts' contributions, said Mr Seah.
He thinks the gaming segment could 'steal pole position from pharmaceuticals as the fastest-growing sector', and expects it to contribute about S$5.2 billion or 1.7 percentage points of his projected 7 per cent GDP (gross domestic product) growth for 2011.
Gaming's direct value-add ought to have 'structurally expanded the economic capacity' of Singapore, said Capital Economics Asia economist Vishnu Varathan, who expects 4.5 per cent growth next year.
Financial services are expected to be another key growth segment under services, as global firms position themselves to leverage on Asian growth, Mr Varathan said. Mr Kit noted that regulatory tightening elsewhere has encouraged financial services firms to relocate some operations to Singapore.
And while they acknowledged the risks of excess liquidity fuelling asset bubbles, financial services could get a lift from the huge capital inflows quantitative easing in the United States is expected to trigger, the economists said.
Intermediating these flows generates revenues for financial institutions, said Mr Seah who expects strong growth of up to 10 per cent, possible positive spillovers into business services too.
In terms of external uncertainties and risks to next year's economic outlook, OCBC economist Selena Ling, who expects 4 to 5 per cent growth in 2011, pointed to persistent high unemployment in the US, potential fiscal debt contagion in the European Union's periphery and fears of aggressive monetary tightening from China.