VZCZCXRO5740
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0303/01 0910018
ZNR UUUUU ZZH
R 010018Z APR 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6555
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 2270
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 000303 
 
STATE PASS USTR 
NEW DELHI FOR EHRENDREICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN SN
 
SUBJECT:  SINGAPORE ECONOMISTS LOOKING FOR LIGHT AT END OF TUNNEL 
 
REF:  SINGAPORE 80 
 
¶1.  (SBU) Summary:  Although Singapore has seen a steep drop in 
exports and industrial production the past few quarters and is 
expected to see continued drops in the near future, Singapore 
economists are beginning to see signs that the economy has bottomed 
out and a slow recovery may soon be underway.  A leading Singapore 
academic is forecasting a relatively optimistic growth rate of 
negative 4.0 percent for 2009, dreadfully low by Singapore standards 
but higher than most leading investment bank forecasts.  Although 
private sector economists remain more pessimistic, some analysts are 
also seeing signs that the rate of economic decline is at least 
slowing.  Nevertheless, the Monetary Authority of Singapore is 
expected to loosen monetary policy in April.  End Summary. 
 
¶2.  (SBU) Singapore economists recently once again revised downward 
their forecasts of economic growth in 2009, but economic indicators 
showing that the rate of economic decline slowing, if not reversing, 
are leading some economists to think they may finally be seeing 
light at the end of a long, dark tunnel.  Dr. CHOY Keen Meng, a 
respected macroeconomist at Nanyang Technological University's 
Economic Growth Center, presented his semi-annual economic forecast 
March 24, predicting Singapore would see a growth rate of -4.0 
percent in 2009.  Dr. Choy admitted his forecasts were significantly 
rosier than those of most other Singapore-based analysts.  Dr. Choy 
said he saw signs of recovery in the U.S. market, which is critical 
for Singapore's export-oriented economy.  Dr. Choy noted that U.S. 
leading indicators showed some life in January and February, 
including the U.S. Purchasing Managers Index and housing starts. 
Singapore's own leading economic indicators are also showing signs 
of stabilization although not yet outright recovery.  Dr. Choy cited 
a month-on-month improvement in non-oil retained imports (NORI) of 
0.8 percent in February that followed a 5.9 percent decline in 
January.  An increase in NORI, which includes imports used for 
consumption or manufacture of other goods, could mean businesses are 
receiving new orders or running down inventories and will begin to 
ramp up production. 
 
¶3.  (SBU) Dr. Choy forecast that the first quarter of 2009 would 
show the worst performance of the year with a -8.7 percent decline, 
but that in succeeding quarters the Singapore economy would see 
smaller declines in quarterly GDP and eventually post positive 1.5 
percent growth in the fourth quarter.  Manufacturing would be the 
hardest hit sector for the year, with a projected -12.1 percent 
decline in 2009.  Dr. Choy later told Econoff that he could not rule 
out a "W"-shaped recovery, with a short spike of growth amidst a 
longer and slower recovery.  He offered the caveats that his 
predictions presumed a resolution of banking insolvency problems, 
resumption of global credit lending, and a successful stimulus 
package in Singapore that would add 1.5 points to real GDP. 
 
Private Sector Less Cheery 
-------------------------- 
 
¶4.  (SBU) Most private sector analysts are less sanguine about 
Singapore's economic outlook for 2009 and recently lowered forecasts 
yet again.  The 2009 GDP forecasts range from a low of negative 10 
percent to a high of negative 3.9 percent.  These analysts cite 
Singapore's high dependence on exports (approximately 200 percent of 
GDP), especially to the G3 countries, for their pessimistic 
forecasts.  This high exposure to the global economy has left 
Singapore's key export sectors battered amid the current recession. 
They do not expect a recovery in the G3 economies anytime soon that 
could provide the catalyst for a rebound in external demand.  The 
fiscal stimulus package announced in January is expected just to 
keep the economy from deteriorating further, rather than boost 
growth. 
 
2009 GDP Growth Forecasts 
------------------------- 
                    Forecasts 
                    (percent) 
----------------------------------- 
 
Government          -5.0 to -2.0 
Standard Chartered     -3.9 
Nanyang Tech Univ.     -4.0 
Barclay Capital        -4.0 
UOB                    -4.0 
JP Morgan              -4.5 
DBS                    -4.8 
Citigroup              -4.9 
Morgan Stanley         -6.0 
Nomura                 -6.3 
 
SINGAPORE 00000303  002 OF 002 
 
 
Credit Suisse          -6.5 
HSBC                   -7.0 
Goldman Sachs          -8.0 
CLSA                   -10.0 
 
------------------------------------ 
Source:  Various reports 
 
¶5.  (SBU) Nevertheless, some local analysts have begun to see signs 
of a bottom emerging, though with reservations about the pace and 
sustainability of any recovery given still fragile economic 
fundamentals.  Citigroup analysts pointed out a 1.8 percent monthly 
increase in non-oil domestic exports in February that, together with 
improvements in indicators in the electronics market, give some hope 
that exports may have found a bottom, or at least are now falling at 
a slower rate.  HSBC analysts said the drop in inventories portends 
a bounce in industrial production as firms restock, but cautioned it 
would be insufficient to put Asian economies on the road to 
recovery.  They predict statistics will show a "horrible" first 
quarter for industrial production in Singapore, but noted that 
January's all-time drop of 29.8 percent may have marked the bottom 
of the industrial cycle, at least in year-on-year terms. 
 
From Fiscal to Monetary Policy 
------------------------------ 
 
¶6.  (SBU) The GOS put in place an expansionary US$13 billion fiscal 
stimulus package in January (reftel), and expectations are now that 
the Monetary Authority of Singapore (MAS) will ease monetary policy 
at its upcoming meeting in April to further cushion Singapore's 
deteriorating economy.  In Singapore, MAS conducts monetary policy 
via the exchange rate, whereby the Singapore dollar is allowed to 
fluctuate against an undisclosed basket of currencies within a band. 
 Private sector economists expect that the MAS will allow a one-off 
devaluation of the Singapore dollar.  Despite the weak economy, the 
Singapore dollar has been appreciating against a basket of its 
trading partners' currencies.  Most analysts expect the Singapore 
dollar to weaken to Singapore $1.58 per U.S. dollar from Singapore 
$1.52 per U.S. dollar by mid-year.  Although the weaker exchange 
rate may give some boost to exporters, loosening monetary policy is 
unlikely to be the most effective policy tool to counter Singapore's 
current economic malaise as its economy suffers more from the global 
slump in demand than from competitiveness problems. 
SHIELDS