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SINGAPORE: Some private sector economists have started to revise their economic growth forecasts for the Singapore economy.
Their move comes after official data showed the economy grew 1.1 per cent for the whole of last year, significantly lower than the 7.8 per cent recorded in 2007.
OCBC Bank, for one, now believes the Singapore economy will contract 4.8 per cent this year, instead of its previous prediction of a 2.8 per cent decline.
With fewer people spending and poor investor confidence, the services sector - like hotels and restaurants - took one of the biggest hits. Its growth slowed to 4.7 per cent for the whole of last year, compared to 8.1 per cent in 2007.
Head of treasury research and strategy at OCBC Bank, Selena Ling, said: "We do think that services growth, which was actually negative in the last quarter of 2008, will probably sink deeper into the red for the first half of this year.
"And due to the sheer size of the services sector, especially with the declines that we're seeing in the financial services sector, we do think that we'll see services sector roll over for the whole of this year. And hence, our full year GDP forecast is now -4.8 per cent."
This is the same rate that DBS is predicting. DBS is also warning that the downside risks remain high in the near term.
DBS' group research economist, Irvin Seah, said the uncertainties concerning how the US government is going to restructure its ailing banking sector, the slowdown in the Chinese economy, as well as economic risks in the eastern European economies, are some of the key risks ahead.
CIMB-GK said for now it is keeping to its forecast of a contraction between three and five per cent this year, but will likely revise the number down after the first quarter data is released.
The manufacturing sector is looking bleak currently. Latest data from the Economic Development Board showed manufacturing output dropped 29 per cent on-year in January. Output in the key electronics sector fell 43 per cent on-year.
But some expect the figures to stabilise by the second half.
OCBC's Ling said: "We're not expecting a very sharp 'V' shape recovery back to the medium-term potential growth of five to seven per cent. Maybe a more realistic range will be about plus three per cent.
"But no matter what, we expect monetary policy easing, possibly at the upcoming April monetary policy review and in addition to that, more aggressive fiscal stimulus will help to set the stage for recovery going into 2010."
As quickly as the financial services sector is affected, some economists pointed out that this industry may also be one of the first few to recover. When investors become more confident, market activities will then pick up quickly, giving Singapore's economy some reprieve.
- CNA/yt
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