Weak export growth and sluggish domestic demand could push Singapore’s economy back into recession in the first half of the year, Barclays Capital warned in a report yesterday.
Singapore only pulled out of its worst recession since 1964 in the second quarter of last year, but the economy contracted again in the third quarter before posting very slight growth in the final three months of the year in quarter-on-quarter terms.
“The likelihood of soft export growth in Singapore, and flaccid domestic demand, underpins our fear of a renewed recession in the first half 2003,” Barclays Capital said.
“Our concerns are further increased by the government’s unusual hawkishness where, despite a climate of deflation and below-trend growth, the MAS (Monetary Authority of Singapore) is refraining from a monetary easing...,” it added.
The MAS said earlier this month it would keep its neutral policy stance on the Singapore dollar which had been in place throughout 2002.
The policy is based on an expectation of stagnant activity in the first six months of the year as uncertainties such as the potential conflict in Iraq weigh on external demand for Singapore’s exports. But it assumes that these would give way to more robust export growth in the second half of 2003 due in part to a stronger global electronics industry.
Barclays Capital believes, however, that Singapore’s export sector may continue to underperform the rest of Asia in 2003 as it did last year because it has a low exposure to China's economy, the region’s primary source of growth.
On the domestic front, Barclays Capital said, a weak construction sector, low levels of business investment and consumers frightened by the prospect of job losses would depress demand.
“We expect a renewed contraction of consumer demand in 2003 amid rising unemployment, the negative wealth effect of soft property prices, and underlying deflationary trends,” it said.
As a result, Barclays Capital said it feared that growth would fall short of the government's forecast of 2%–5% growth in 2003 gross domestic product. – Reuters
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