Singapore economy will grow, but barely, in 2012

Our 2012 GDP growth forecast is 3% yoy, but the risk is for growth to undershoot should there be a global recession or full-blown financial crisis in the developed economies. The domestic composite leading index has been contracting for three consecutive quarters this year and shrank 2.9% qoq in Q3, signaling a slowdown ahead, but we are not penciling in a double-dip recession for the US or a hard landing scenario for China at this juncture. As it is, a 3% yoy handle in 2012 already implies a technical recession is likely on the cards.

Manufacturing growth may remain subdued as biomedical sector activity potentially retracts and electronics remains depressed. While the semiconductor book-to-bill ratio appears to have troughed at 0.71 in September and stabilized at 0.74 in October, prospects for improvement in demand conditions in the developed economies remain dim in the near-term. Meanwhile, MTI had warned that support from domestic biomedical sector due to increased production of active pharmaceutical ingredients and biologics will only be modest. The November manufacturing PMI had contracted for the fifth straight month, deteriorating further from 49.5 in Oct to 48.7 and reflecting a further decline in new orders and new export orders. The electronics PMI also softened from 52.1 to 50.7 over the same period, reflecting a decline in new orders as well.

Financial intermediation activity is expected to moderate and the sentiment-sensitive segments are expected to perform poorly. Hence a moderation in the financial services momentum is in order. Should the European policymakers and leaders fail to deliver a comprehensive and aggressive package of measures to combat the persistent sovereign debt crisis, the prognosis is not good and the global economy may have to brace for another replay of the 2008-09 financial crisis. This is potentially a double-edged sword for Asian financial centres like Hong Kong and Singapore, where some diversion of funds towards Asia may be offset by the deleveraging activity of European banks. For instance, the ADB is already preparing for a surge in demand for its trade-finance program to fill persistent market gaps as some major European banks are retrenching from the business.

Tourism-related services have benefited from rising visitor arrivals from the region since the two Integrated Resorts opened, but may find it more challenging going forward in the face of slowing GDP growth within the key Asia and more cautious consumer spending patterns amidst the global uncertainties. Our 2012 GDP growth forecast for the top 3 visitor markets, namely China, Indonesia and Malaysia are 8.5% yoy, 5.3% and 3.8% respectively.