Outlook For 2001

The external outlook has weakened further in recent months. All major economies have slowed sharply. In the US, second quarter growth slowed to 0.7 per cent, the lowest since the first quarter of 1993. Although consumer spending remained healthy, investments continued to decline, and will be a drag on economic growth until excess inventories and capacities are purged.

For the EU, the impact of the US economic slowdown turned out to be greater than expected. Growth slowed considerably from the 3.4 per cent in 2000 to 2.6 per cent in the first quarter of this year as both private consumption and investments continued to moderate. In view of the rapid deterioration, the European economy is now expected to grow below 2.5 per cent this year instead of the earlier projected growth rate of 2.8 per cent.

The Japanese economy contracted by 0.8 per cent in the first quarter. Despite the weaker Yen, exports fell sharply due to the drop in external demand. Consumer and business spending also remained sluggish. The outlook for the rest of the year remains gloomy, as reflected in the latest Tankan survey results.

The downturn in the global electronics industry has worsened in the last few months. Worldwide semiconductor sales declined further by 31 per cent in the second quarter 2001, from a 4.4 per cent decline in the previous quarter. As a result, industry analysts have downgraded their forecasts again, to as low as -30 per cent. The industry is now expected to remain weak at least till the end of 2001 although there are some tentative signs that it could return to sequential growth in the fourth quarter of the year.

The adverse external environment will affect Singapore significantly. The tradable sectors will be the most affected. This can be seen in the second quarter results where growth in the manufacturing, entrepot trade, air and sea transport, and restaurants and hotels all turned negative. Financial services have also slowed substantially since the first quarter this year, led by declines in stockbroking, investment advisory and offshore lending activities.

Forward-looking indicators also point to continued weakness in the Singapore economy. The composite leading index (CLI), which tracks economic activity about three quarters ahead, has declined for the third successive quarter. The index fell by 4.9% over the first quarter this year, compared to a 5.3% decline in the prior quarter. Business expectations surveys also indicate a prevailing pessimistic outlook. In particular, firms engaged in retailing and wholesaling anticipate business conditions to be difficult. Manufacturing firms are also pessimistic about business prospects for the next 6 months.

The Ministry of Trade & Industry had therefore revised Singapore’s 2001 growth forecast from 3.5-5.5 per cent to 0.5-1.5 per cent in July when the second quarter advance GDP estimates were released. As the outlook has not changed significantly since then, it is maintaining the growth forecast for this year at 0.5-1.5 per cent.

Sectoral Growth Rates

Annex 1

Per cent

Source: Singapore Department of Statistics

Press Release dated 10 Aug 2001