MM Lee expects growth to hit top end of 4.5-6.5% forecast

The Straits Times, April 25, 2007
By Audrey Tan, Assistant Money Editor

Key factor for S'pore economy is whether US consumers will continue to spend



SINGAPORE'S economy is likely to grow at the top end of the official 4.5 to 6.5 per cent growth estimate this year, as long as the United States economy holds up, Minister Mentor Lee Kuan Yew said yesterday.

A key factor for Singapore's growth is whether US consumers will continue to spend, he said.

If US consumption is hit by the housing market slowdown or other factors, then Singapore may grow only at the lower end of the range, he said at the Reuters Singapore Newsmaker Event, a dialogue with financial and media professionals, yesterday.

'My guess is it doesn't look as if there will be a major downturn in the US, so it may be at the higher end (of the growth forecast). But the key factor is the US economy. They're still our biggest single market,' Mr Lee said.

But fundamentally, Singapore is set to grow, 'short of an oil crisis or major crisis over Iran', he added.

Even foreign investors from as far as the Middle East and Europe can see the stars are aligned for Singapore.

There are Gulf Arabs and even people from Monaco buying property in Singapore in the current property upturn, compared to previous property booms where the only foreign buyers were from the region, Mr Lee said.

'I took that as a great tribute because if you live in Monaco and you are putting money here, obviously you believe this will last as long as Monaco... So it really affirms my conviction that the stars are in the right firmament for us,' he said.

These property purchases are a strong show of confidence in the Singapore economy, Mr Lee said. 'If they just put money into the stock market, they are off tomorrow. But when you buy property, properties take a long time to negotiate and when you want to liquidate, it takes a long time.'

Mr Lee's optimism was mirrored by the Monetary Authority of Singapore (MAS), which said yesterday that the local economy is on track for a fourth straight year of robust growth.

The central bank is sticking to the official growth estimate even as it notes that the US economy is slowing and the global electronics sector is sputtering.

Singapore's growth momentum may slow in the first half of this year, but will pick up steam in the second half, MAS said in its half-yearly Macroeconomic Review released yesterday.

A 'sharper-than-expected' US downturn is the key risk to global growth this year, but growth in Asia and Europe should provide some cushion for the global economy, it added.

In Asia, strong buying from consumers at home could also help offset a slowdown in exports, it added.

In Singapore, local electronics firms may continue to suffer from the global electronics industry downturn, hurting Singapore's growth momentum in the first half of this year.

But growing stockpiles in the semiconductor industry - which have hit local electronics firms - should clear in the second half, MAS said.

In any case, other non-IT-related industries are expected to be key drivers of growth this year, MAS said.

MAS expects continued growth in non-IT industries, such as transport engineering and the biomedical sector. The finance, retail and tourism industries are also expected to grow, while the property upturn will give a lift to the construction industry, MAS said.

Growth of between 4.5 and 6.5 per cent this year is well above Singapore's medium-term growth potential of 3 to 5 per cent growth, but is still a significant slowdown from last year's 7.9 per cent.

That was the third straight year of healthy growth for the local economy, which grew by 6.6 and 8.8 per cent, respectively, in 2005 and 2004.

But HSBC economist Robert Prior-Wandesforde said Singapore's exports could start to pick up sooner rather than later, which means overall economic growth may well accelerate earlier than the MAS forecast of a second-half recovery.