Dark clouds ahead for Singapore economy in 2012

Don’t get your hopes up as growth will be subdued at 1-3%.

For the last quarter of 2011, growth in the Singapore economy will likely weaken alongside deteriorating external macroeconomic conditions, according to the Ministry of Trade and Industry. Within the manufacturing sector, the electronics cluster is expected to register a lower level of output given the downturn in the global electronics cycle. This in turn will have knock-on effects on the precision engineering cluster and wholesale trade. The biomedical manufacturing cluster is expected to see a pullback in growth following the strong surge in the third quarter. In the financial services sector, activity in the core financial intermediation will moderate and the sentiment-sensitive segments are expected to continue to perform poorly.

Taking into account these factors, MTI expects the Singapore economy to grow by around 5.0 per cent in 2011.

Economic Outlook for 2012
Global economic conditions are expected to remain subdued in 2012, with the outlook clouded by increased uncertainty and financial volatility. In the advanced economies, final demand is likely to be restrained by continued household deleveraging, ongoing fiscal tightening as well as structural weaknesses in labour and housing markets. In the EU, bank recapitalisation will accelerate deleveraging, and curtail loan growth and economic activity.

Although resilient domestic demand in emerging Asia will provide some support to global demand, it will not fully mitigate the effects of an economic slowdown in the advanced economies. Consequently, Singapore’s externally-oriented sectors such as electronics and wholesale trade will continue to perform poorly, while the financial services sector will be affected by heightened uncertainties in the external environment. Nevertheless, there will be some modest support to growth from the biomedical manufacturing cluster and tourism-related sectors. The former will likely see increased production of active pharmaceutical ingredients and biologics while the latter will benefit from rising visitor arrivals from the region.

Given these factors, MTI expects Singapore’s economic growth to be between 1.0 to 3.0 per cent in 2012. This does not factor in downside risks to growth, such as a worsening debt situation or a full-blown financial crisis in the advanced economies. Should these risks materialise, growth in the Singapore economy in 2012 could come in lower than expected.