Singapore Business Forecast Report Q2 2008

Downside Risks to Growth

Singapore's Economy Will Experience Subdued Growth in Fy08/09 When Set against The Expansion of Recent Years. We Foresee Downside Risks to Our .9% Growth Forecast for 2008, as Singapore May Not Be Able to Sufficiently Adjust to The Braking Demand in Europe and The Us. However, The City-State's Strong Political Stability Will Allow It to Partially Direct The Economy Away from The Global Slowdown by Boosting Domestic Parts of The Economy, in Particular The Construction Sector.

Furthermore, Singapore's Investor-Friendly Atmosphere Ensures That It Will Be Able to Bounce Back from The Reduced Growth That Will Likely Feature in The Short Term. The Country Is Dedicated to Attracting Investment and Skilled Labour from Abroad, by Maintaining A Low Tax Regime While Constantly Enhancing The City's Infrastructure.

Singapore's Stable Policy-Making Process Gives The Country A Distinct Advantage in Responding to The Ructions Afflicting The World Economy. Aware of The State's Vulnerability to A Global Economic Slump, The Government Has Announced An Ambitious Sgd30.5bn (Us$21.3bn) Road and Railway Building Programme, to Be Completed by 2020. This Will Not Only Safeguard Jobs in The Construction Sector, Which Surged by 24.3% Year-on-Year (Y-O-Y) in Q407. It Also Tackles Possible Sources for Discontent among The Population, Namely Traffic Congestion and High Property Prices. Expanding The Mass Rapid Transit (Mrt) System Will Make More Land Available for Property Development, Ultimately Increasing The Supply of Housing.

Domestic Spending Should Help Offset Some of The Threat to Overall Growth Posed by Lower Global Demand in Singapore's Exports, but The Short-Term Economic Outlook Is Gloomy. Currently, Our Forecast of .9% Growth in 2008 Is in The Upper Range of The Government's Reduced Forecast of 4.0-6.0%. However, The Government's Forecast Assumes That The Us Economy Will Recover in H208, So We See Downside Risks to Our Forecast, Especially If Singapore's Continues 2008 in The Manner That 2007 Ended. The Disappointing Gdp Data for Q407, Which Constituted The First Quarterly Contraction since 2003, Were Largely Due to A Fall in Biomedical Manufacturing Rather than Diminshed Us Demand, Suggesting That Further Deceleration in H108 Is to Be Expected Once The Us Downturn Becomes More Pronounced.

Singapore Will Be Able to Recover from Reduced Growth in The Medium Term Because of Its Excellent Business Environment. as The Country Is So Dependent on The External Sector, The Government Has Maintained Its Commitment to Attracting Foreign Direct Investment (Fdi) and Skilled Migrants by Keeping Taxes Low and Improving Its Infrastructure. A Two Percentage Point (Pps) Cut in Corporate Taxes Is Due to Come into Effect in H208, While Personal Income Taxes Are Likely to Be Reduced in The Medium Term. Meanwhile, The Government's Forward-Looking Attitude towards Infrastructure Is Highlighted Not Only by Upgrading Existing Facilities Such as Its Container Ports, but Also by Moving into New Potential Areas of Growth, for Example by Planning The Construction of A Liquefied Natural Gas (Lng) Import Terminal. Finally, A Climate of Negligible Corruption and Nominal Bureaucracy, Combined with The Government's Proactive Stance on Upholding Physical Security, Strongly Promotes Commerce and Finance, Ensuring That The City Retains Its Dominant Status as A Regional Hub for Business.