Economists expect 1%-3% full-year GDP growth

Economy seen to rebound from slow start, ahead of ministry's Q1 forecast

SINGAPORE'S economy may have got off to a less than stellar start to the year, but economists expect a modest recovery as the year unfolds.

Ahead of official first-quarter economic growth data, they are sticking with fairly upbeat full-year forecasts.

Most expect gross domestic product (GDP) growth of 1 per cent to 3 per cent or so - broadly in line with the official forecast.

Preliminary GDP first-quarter data will be released by the Ministry of Trade and Industry within the next two weeks.

This follows a string of poor economic data recently, with last month recording weak exports and factory output and higher than expected inflation.

"Global demand is likely to recover, giving us some support at a time when restructuring pains will be intensifying," said chief executive of Centennial Asia Advisors Manu Bhaskaran.

DBS economist Irvin Seah said while the seasonal effect of Chinese New Year dragged down the economy, manufacturing output is likely to rebound from this month onwards. He expects full- year growth of 3.2 per cent.

"We are going through a bottoming-out... data from March onwards will provide a more accurate picture of underlying economic conditions," said Mr Seah.

He estimates the economy has grown 0.5 per cent in the first quarter of this year compared with the same period last year.

Bank of America Merrill Lynch economist Chua Hak Bin said the manufacturing sector remains the main drag on growth, and will continue to bear the brunt of the economic restructuring process.

"Singapore is in a transition period, and the service sector's share of the economy will increase. Robust growth in services is compensating for the weakness in manufacturing," he said.

He expects the economy to grow 2.5 per cent this year.

On the inflation front, economists expect the Monetary Authority of Singapore to stick with its current policy of allowing a modest, gradual appreciation of the Singdollar in its April review.

Relatively high inflation here, and the more positive global outlook support this view, they said.

The exchange rate is the Government's main tool to combat inflation. A stronger Singdollar helps keep inflation lower because imports, for example, cost less in Singdollar terms.

"Although some of the sources of inflation in February were temporary, others - like the impact of higher foreign worker levies and tighter controls on the use of foreign labour - will be longer lasting," said Mr P.K. Basu, managing director and regional head of research and economics at Maybank Kim Eng.

Mr Seah agreed, adding there is not much room for monetary policy manoeuvring - while inflation is likely to ease because of recent car and property market curbs, underlying cost pressures will stay high due to restructuring. "Any weakness in the economy is coming from restructuring and declining global competitiveness... a strong Singdollar will complement the restructuring process."

chiaym@sph.com.sg