In Focus
ECONOMY | Staff Reporter, Singapore

Prolonged EU sovereign debt crisis spells trouble

Other downside risks to growth include the geopolitical tensions in MENA and the continued surge in commodity prices resulting in higher inflationary pressures.

AmFraser Research noted, “We’re getting fears of a global economic slowdown, or worse, triggered by renewed European sovereign debt worries, high unemployment, weakening manufacturing data and erratic housing numbers.”

It added, however, that it’s not all gloom. Here’s more:

The Singapore GDP numbers for the first quarter moderated to 8.3%YoY in 1Q11, from 12%YoY in the final quarter of last year. Despite lower-than-estimated growth in 1Q11, MTI is rather optimistic about a stronger full-year performance, by raising the real GDP to between 5% and 7%, upwards from the previous estimate of 4% to 6% reported earlier.

The 1Q11 growth was largely supported by the manufacturing sector as the sector grew by 13.1%YoY while the services sector grew by 7.3%YoY in 1Q11 – led by financial services, as commercial bank lending activities increased. However, growth in the trade-related services sectors moderated slightly with a slower growth in exports and re-exporting activities.

Our house view is maintained. We have earlier said the Singapore economy would likely register a moderate but sustainable growth of 5%-6% in 2011 versus the strong growth of 14.5% in 2010. Downside risks to growth include the continued surge in commodity prices resulting in higher inflationary pressures; geopolitical tensions in MENA; prolonged EU sovereign debt crisis; and the impact from the Japanese earthquake especially with regard to a potentially prolonged disruption of supplies for manufacturing and production.

Nonetheless, services will be a key driver of growth in 2011 for Singapore, as tourism will be boosted further with the two newlybuilt casino resorts being fully operational throughout the year. Manufacturing, on the other hand, will continue to remain moderate, as growth prospects in advanced economies remain weak.

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