As storm rages, Singapore studies its impact

AS flagged by the Monetary Authority of Singapore (MAS) last month, the official forecast of Singapore's 2011 growth has been revised down a notch to 5-6 per cent, the lower half of the earlier 5-7 per cent range.In his National Day message aired last night, Prime Minister Lee Hsien Loong said: 'Despite some risks on the horizon, we project steady growth of 5-6 per cent for 2011.'

But the message had been pre-recorded last week, and 'since then, global financial markets have been turbulent and nervous', with the downgrade of the US sovereign debt rating, and the outlook for the major economies has 'become more uncertain', the Prime Minister's Office (PMO) said in a statement yesterday. Still, 'it is premature to revise Singapore's growth forecast of 5-6 per cent for the year', it said. 'The economic agencies are carefully monitoring the situation.'

Economists yesterday said the new official forecast - which MAS had alluded to at a media conference last month when it warned of significant risks that could hit Singapore's growth - reflects the government's cautious approach to growth forecasts, given the highly fluid external environment.

In contrast, private sector forecasts of 2011 growth had already gone below 5 per cent in recent weeks, with Credit Suisse cutting its estimate by one percentage point to 5.5 per cent yesterday, warning that 'the risks of a recession in Singapore have increased significantly'.

Others, however, such as Citigroup's Kit Wei Zheng, prefer to 'resist the temptation to turn overly bearish' despite the increased risks and uncertainties. Mr Kit will finalise his 2011 forecast only after seeing the July industrial output figures.Notably, he pointed out, the PM's National Day message has an upside surprise: Mr Lee said the economy grew 4.9 per cent in the first half of 2011.

This suggests, according to Mr Kit, that the second-quarter flash estimate of 0.5 per cent growth may have been upgraded, as earlier estimates had put first-half growth at 4.7 per cent. In any case, the market had widely expected a Q2 growth downgrade.While the risk of a technical recession in Q3 'has clearly risen materially', if there is a Q4 recovery, 'full-year growth could still come within 5-6 per cent, or higher without technical recession', Mr Kit said.

It was only in mid-May that the official 2011 growth forecast had been raised by a full point to 5-7 per cent, from an early estimate of 4-6 per cent.In his National Day message, Mr Lee said that 'despite our best efforts, we could not shield Singaporeans fully from external shocks' in recent years, and that the government is doing its utmost to tackle policy shortcomings - in housing, transport, in the social safety nets, and in moderating the inflow of foreign workers and immigrants.

'The results will not arrive overnight, but we should see improvements over the next few years,' he said.But Singapore must be 'especially careful of one issue', he warned: 'While we will always put Singaporeans first, let us not turn negative on foreigners.'

Singapore has prospered because it has been 'open to the world and alive to economic competition and change', Mr Lee said.'We cannot afford to close in on ourselves, or attribute all our problems to foreigners. We must stay connected to the world, and continue to welcome talent and ideas, wherever they may come from.'

Singapore has 'comprehensive plans' to achieve its various socio-economic goals, Mr Lee said.'The next few years will bring more rapid changes and surprises. We must anticipate and respond to these external events as best as we can, and steer a course that maximises Singapore's chances of success.'