Growth could dip below 1%: MAS

There is greater uncertainty in the US economy compared to three months ago, said MAS maanging director Ravi Menon.

Here's an excerpt from his speech delivered at MAS Annual Report 2011/12 Press Conference yesterday (July 25):

Singapore’s GDP growth averaged 4.2%1 in the first half of this year. But the growth momentum is clearly slowing. The average growth in the second half of the year is likely to be slower than in the first half of the year. This is not unexpected, and has been factored into whole year growth forecast of 1-3%.

The global economy is slipping into a synchronised slowdown. The latest business surveys in all major jurisdictions have turned more negative. There is greater uncertainty in the US economy compared to three months ago, especially with respect to the labour market. The Eurozone remains mired in recession with no early end in sight. Financial market stresses have eased somewhat but the underlying vulnerabilities remain. In emerging Asia, domestic demand is holding up, but growth is vulnerable to developments in America and Europe. The full extent of weakness in exports, and its effects through regional production and trade linkages, has probably not filtered through completely.

I must add that our forecast is based on three assumptions: no recession in US, no significant escalation of the Eurozone crisis, and no “hard landing” in China. If one or more of these assumptions do not pan out, Singapore’s GDP growth could dip below 1% for 2012.

 But growth of 1-3% should be seen in perspective. The economy is operating at full employment and capacity utilisation is high. The Singapore economy has expanded by an average of 5.8% over the past five years, faster than economy’s underlying potential. The moderation in growth thus brings the economy closer to its sustainable level of output, and will help relieve cost pressures.