Experts cite 2 key factors for higher growth forecast

PHOTO: Experts cite 2 key factors for higher growth forecast

SINGAPORE - A brighter outlook for the global economy, coupled with a broad-based pick-up in domestic growth, likely spurred the Government to raise its growth forecast for this year, economists said.

Their comments came after Prime Minister Lee Hsien Loong revealed in his National Day message on Thursday that the Singapore economy is now expected to grow between 2.5 per cent and 3.5 per cent this year, up from the previous projection of 1 to 3 per cent.

Barclays economist Joey Chew attributed the higher forecast to recent "robust data from the major economies".

Figures this month indicated a better-than-expected rebound in United States manufacturing and services activity. In the euro area, business activity grew in July for the first time in 18 months, while China's slowing economy shows signs of starting to stabilise, Ms Chew added.

While stronger growth in these external markets could give a boost to Singapore's trade-dependent economy, domestic sectors are also pulling their weight.

OCBC economist Selena Ling said Singapore's economic growth in the second half of this year is anticipated to stem from a "broad-based stabilisation in manufacturing and robust construction and services momentum".

Manufacturing and construction together make up about a quarter of the economy, while services accounts for two-thirds.

In particular, services firms turned in a strong showing in the second quarter, likely making up for a weak trade performance, economists suggested.

PM Lee had also said on Thursday that the economy grew 2 per cent in the first six months of this year, implying that growth in the April to June period was close to the Government's flash estimate of 3.7 per cent from a year ago.

Economists had expected second-quarter expansion to be lower than the estimate - which was released last month - given that exports fell throughout the three months. Fuller figures for the quarter will be out on Monday.

UOB economist Francis Tan expects the data to show a jump in wholesale and retail trade services, as well as strong contributions from transport and storage services, finance and insurance services, and business services.

Despite the healthier-than-expected economic growth this year and relatively low inflation recently, economists do not expect the Monetary Authority of Singapore (MAS) to change its stance on a strong Singapore dollar when it next reviews monetary policy in October.

"If growth is better than anticipated and inflation is contained at this juncture, there is little impetus to adjust policy settings in October," said Ms Ling.

Ms Chew added that faster growth may also lead to rising costs, given the tight job market.

"I think stronger growth raises the medium term and structural core inflation pressures in the economy," she said. "There are a lot of latent labour cost pressures yet to be passed through to consumers. I think MAS needs to remain vigilant and keep the current appreciation stance."

On the other hand, Mr Tan believes recent data showing waning inflationary pressure here could prompt the MAS to ease up on the pace of appreciation of the Singdollar. He expects the Singdollar to weaken to 1.30 against the US dollar at year-end. It is currently trading at about 1.26.

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