IMF raises Singapore's 2010 growth forecast to 8.9%, Asia to 7.1%

Channel News Asia, by Chris Howells, 29 April 2010 2105 hrs

SINGAPORE: The International Monetary Fund has upgraded its growth forecast for Singapore's economy.

In its latest Regional Economic Outlook for Asia and the Pacific, the IMF said the Singapore economy may expand 8.9 per cent this year.

This is sharply higher than its previous prediction of 5.7 per cent made in a separate report, World Economic Outlook, just a few weeks ago.

The latest forecast is at the higher end of the Singapore government prediction of 7-9 per cent growth, which itself was raised in mid-April.

But economists say Singapore's growth could easily exceed both the best forecasts of the government and IMF.

Robert Prior-Wandesforde, senior Asian economist, global research, HSBC, said: "We're expecting Singapore to see 9.5 per cent GDP growth in 2010, so somewhat above the IMF's 8.9 per cent figure.

"And if anything the risks are tilted towards an even higher number than we've got. It's not impossible that Singapore could actually register year average GDP growth in double digits."

For 2011, the IMF believes Singapore's economy could grow 6.8 per cent, higher than 5.3 per cent forecast previously.

As for Asia, the IMF says the region could grow 7.1 per cent this year. Previously, it had put this year's growth at 6.9 per cent and 7 per cent for next year.

It's citing the speed of the current economic recovery and the lead that Asia is taking in the global upturn.

It also said that growth would be sustained into 2011.

Singapore's strong economic growth in the first quarter of this year has given the IMF reason to be somewhat more confident about the rest of Asia.

The IMF also cited a widening of domestic demand-based growth in the region as another reason for its upgrade.

Speaking from Shanghai, the IMF's Asia head said China's economy could grow 10 per cent this year, but warned of potential risks.

Anoop Singh, director, Asia & Pacific, IMF: "China's economy has been growing rapidly. It's also helped the recovery in Asia.

"The challenge for China over the medium term is also one of rebalancing: to use comprehensive policies involving fiscal, financial and exchange rate, to shift to drive private consumption as a major engine of growth."

The IMF says Asia's economies remain closely tied to the fortunes of the West, and a slower than expected recovery there could weigh on the region.

It also says while Asia could benefit from rapid capital inflows due to its brighter prospects, it could also lead to overheating.

Economists agree that capital inflows may present risks, but there are mitigating factors.

Mr Robert Prior-Wandesforde said: "The capital inflows are certainly very strong into Singapore and into Asia as a whole and that certainly presents some inflationary risks looking ahead.

"Personally I don't think they should be exaggerated right now. What we're also seeing is a fall back in some commodity price inflation. Oil price inflation, food and metal price inflation is starting to come off and that should help temper inflation."

As for the Chinese yuan, the IMF reiterated a view that the currency remains undervalued.

It also said rebalancing Asia's economies away from trade dependence and toward domestic demand would require collective policy efforts across the region.

- CNA/jy