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UPI Business Correspondent
10 April 2003
Singapore’s economic recovery is losing steam faster than expected as demand wanes for the country’s exports. Advance estimates for the first quarter showed that gross domestic product increased by 1.5 percent, well below an official estimate of 2.7 percent and market expectation of 2.3 percent.
Further downside risks are likely, with the second quarter holding the key as the real impact of the severe acute respiratory syndrome epidemic will become more apparent.
The GDP estimates are usually largely based on the first two months’ data of a quarter, however economists believe this time the estimate also strongly took under consideration expectations for March, with the early impact of the war in Iraq and the onset of the SARS outbreak.
GK Goh economist Song Seng Wun said, “Our guess is that the government took into consideration the sharply slower pace of economic activities in March, the double whammy impact from war and SARS jitters. Therefore, taking into account the available set of data information, the flash estimate of 1.5 percent growth in 1Q ’03 is probably a fair call.”
On an annualized seasonally adjusted basis, which provides an indication of the underlying momentum, the economy expanded by only 0.7 percent.
The manufacturing sector is estimated to have grown by 5.5 percent, with the moderation in growth attributed mainly to slower activity in the electronics industry. The construction sector, on the other hand, is estimated to have contracted 10 percent due to the sluggish property market.
Services-producing industries are estimated to have grown by 0.7 percent. Almost all services sectors registered poorer performance due to uncertainties in economic conditions, the ministry of trade and industry said.
This was the slowest pace of growth for services producing industries in 4 quarters, noted OCBC analyst Suan Teck Kin.
Kaan Quan Hon, economist at DBS Bank said the key question was how much would the economy slow further going forward, especially considering the impact of SARS.
“Economic growth for full-year 2003 could slow to around 2.0 percent. Apart from the outbreak of the SARS disease, there are concerns over how much of the current U.S. economic weakness is structural in nature. This will not be clear until probably mid-2003,” Kaan said.
“The bottom-line is that 2Q03 will be a major test for Singapore, with GDP growth at risk of touching negative territory,” Kaan added.
Song said that even though the war clouds appear to have blown away, there was “more downside risks” in the second quarter given the sharp fall in services activities already experienced this quarter.
“Our calculations show that a 10-percent fall in tourism receipts and private expenditure will shave 0.5-1.2 percentage points off Singapore’s GDP growth for the full year,” estimated Suan.
OCBC has lowered its 4-percent growth forecast for 2003 to 3 percent, “with risk weighing mainly at the downside, depending on the extent of containment of the outbreak,” said Suan.
Song also estimated that every 10-percent drop in private consumption knocks off 1 percentage point off headline GDP growth. “If the sight of empty restaurants, hotels, convention halls and the zoo is here to stay for the next few months, there is a high risk that the overall services sector will record a contraction in the second quarter and possibly into the third quarter,” Song said.
GK Goh recently revised downward its annual GDP growth forecast to 2 percent and Song said even this revised forecast may look “a tad optimistic” in light of the poor showing of the first quarter.
Beyond services as the major casualties of SARS, economists estimate manufacturing could also be hurt indirectly by developments in Hong Kong and China, which are among Singapore’s key trading partners and are among the places most seriously affected by SARS.