Republic will power ahead with 7.5-per-cent growth this year.

WITH just four months to go before 2007 draws to a close, private-sector economists have given the economy the thumbs up, predicting that the Republic will power ahead with 7.5-per-cent growth this year.

This is up from an estimate of 6 per cent in the last Monetary Authority of Singapore (MAS) survey in June.

And next year, Singapore could enjoy economic growth of 6.5 per cent, up from a previous estimate of 5.8 per cent.

Interestingly, this optimism comes through even though the survey was done amid the stock market volatility last month over the United States’ sub-prime concerns.

The survey was released yesterday, almost a month after the Government raised its GDP targets to between 7 and 8 per cent on the back of a buoyant second-quarter showing.

The 18 economists raised their median growth forecasts for all sectors, except for marginal downgrades for the hotel/ restaurant industry and non-oil domestic exports.

Most notably, the construction sector is expected to gain 15 per cent for the year — up from 10 per cent in the previous forecast — overtaking financial services as the main engine of growth.

The MAS distributed the survey on Aug 13, just as global stock markets plummeted from fears of a worldwide credit crunch caused by rising default rates in the US housing market.

Citibank economist Chua Hak Bin attributed the optimism to an exceptionally strong second quarter showing here and the limited impact of the US housing recession.

He said: “One argument is that there are multiple growth drivers, and some of these drivers are actually because of the strong investment rebound. And the investment would continue regardless of what happens to external demand.”

But experts are split on whether the US housing slump — said to be the worst in 16 years — will affect the broader economy and spiral to Asia.

UOB economist Alvin Liew cautioned that the effects of US sub-prime crisis “have yet to unravel”.

Said Mr Liew: “There’s still a lot of uncertainty. But the US Federal Reserve has already shown the commitment to come in to ease liquidity.”

Last month, the Fed cut the rate on direct loans to banks in an effort to increase liquidity as investors shunned assets linked to sub-prime mortgages.

And last Friday, Fed chairman Ben S Bernanke said the central bank will do what is needed to stop the credit market rout from wrecking the six-year expansion — a move that some experts think will involve the cutting of interest rates, currently at 5.25 per cent, at a highly-anticipated meeting on Sept 18.

Said Citibank’s Dr Chua: “Once the Federal Reserve cuts interest rates, I think the market will probably stabilise.”

He also pointed out that the US consumer market was not as heavily hit this time, compared to the previous US housing recessions that took place at both ends of the 1980s, when both the mortgage rate and unemployment figures hit double digits.

Still, any slowdown in the US will also be buffered by the rosy economies elsewhere, particularly in China, said Mr David Cohen, director of Asian economics forecasting at Action Economics.

He added: “The fact that the rest of the world is pretty healthy right now is helping to boost US exports.”

Which is why economists are predicting a smooth end to the year, with continued growth in all the sectors — even as the US sub-prime woes loom large.

As Mr Liew put it: “We already have three quarters of growth in the bag. I don’t see how we can drop off to below 7-per-cent growth.”

Source : Today - 06 Sept 2007