Strong rally expected in 2nd quarter

Strong rally expected in 2nd quarter

Higher factory output may have led to a double-digit growth quarter-on-quarter

By Fiona Chan

If the pharmaceutical rebound continues and keeps driving the manufacturing improvement, there may be a growth forecast upgrade. But even if the manufacturing momentum tapers off, other sectors may help to pick up the slack, say economists. — ST PHOTO: LIM WUI LIANG

THE earlier-than-expected bounce in the manufacturing sector may have given Singapore’s economy a much-needed boost in the second quarter of this year.

Most of the eight economists polled by The Straits Times are predicting that higher factory output spurred the economy to grow by double digits between March and last month - the first quarter-on-quarter expansion in four quarters.

But in year-on-year terms, which compares the second quarter of this year to the second quarter of last year, growth would still be negative as the economy remains weaker now than last year.

Still, the strong rally expected in the second quarter has led economists to keep a close eye on their growth forecasts for the full year.

The Government’s official estimates on how the economy did in the second quarter are due this month, and the final figures will be out next month.

But at least one economist is so confident of a sharp rebound in the second quarter that he is already raising his full-year growth forecast ahead of the official data.

Citigroup’s Kit Wei Zheng believes the economy will expand by an astonishing 22.8 per cent in the second quarter over the first quarter, reversing the 14.6 per cent quarterly contraction in the first quarter. Based on this, he is predicting that the economy will shrink only 2.7 per cent for the whole year, compared to the 5 per cent decline he tipped earlier.

This is a far more optimistic view than the official forecast from the Ministry of Trade and Industry (MTI), which is predicting that the economy will shrink by 6 per cent to 9 per cent this year.

The MTI’s forecast was released before figures that showed the manufacturing sector started to grow again in April and May, with growth expected to continue last month.

Although the sector’s growth so far has been due mainly to a spike in drugs output, the electronics segment has also recently shown signs of turning the corner, said DBS economist Irvin Seah.

‘In fact, across the board, all segments of manufacturing are clearly off the bottoms we saw in January and February.’

Whether the rally in manufacturing continues into the third and fourth quarters of the year remains to be seen. The economy is unlikely to keep growing at a double-digit pace, given that there are still ‘pockets of weaknesses’ all over the world, Mr Seah said.

But if the bounce in manufacturing is indeed sustained into the second half of the year, full-year economic growth could shrink by less than 5 per cent, said OCBC economist Selena Ling.

‘If the pharmaceutical rebound continues and keeps driving the manufacturing improvement, the potential for a growth forecast upgrade is there,’ she said.

Even if the manufacturing momentum tapers off, other sectors may help to pick up the slack. Services, which makes up two-thirds of Singapore’s economy and has yet to turn around decisively, may be the deciding factor for growth in the second half of the year, economists said.

Barclays economist Leong Wai Ho noted that apart from manufacturing, sentiment-sensitive segments of the economy such as property, financial services and the stock market also helped boost growth in the second quarter.

Mr Kit believes that because Singapore’s economy is so open to external forces, it will benefit more than other countries from improvements in the American and Chinese economies.

This means a gradual recovery in trade-related services as trade slowly picks up, as well as improvements in the tourism and retail industries.

Property sales and construction should also continue to grow, which may offset a slowdown in manufacturing growth after the second quarter, he said.

Another positive sign emerging in the second quarter is fewer layoffs, said Mr Leong. Better-than-expected job numbers could set the stage for a swifter recovery when it starts.

Source : Straits Times - 07 July 2009

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