SINGAPORE -
Singapore on Monday predicted sharply lower economic growth of 1.0-3.0
percent in 2012 amid an export slowdown and warned the situation could
worsen if Europe's debt woes trigger a global crisis.
The figure
is off the previous estimate of 2.5-3.5 percent and well down from the
five percent predicted for 2011 as demand in the city-state's key export
markets in Europe and the United States dries up.
"This does not
factor in downside risks to growth, such as a worsening debt situation
or a full-blown financial crisis in the advanced economies," the
Ministry of Trade and Industry (MTI) said in a statement.
"Should these risks materialise, growth in the Singapore economy in 2012 could come in lower than expected," it added.
The
2011 gross domestic product (GDP) forecast is a huge slowdown from the
all-time high of 14.5 percent seen in 2010 when the economy was coming
off a 0.8 contraction the previous year.
Singapore's trade-driven
economy is regarded as a bellwether for Asia's exporters, which depend
heavily on electronics and other manufactured shipments to North America
and Europe for growth.
"It looks like the risk is towards the
downside," Chua Hak Bin, a Singapore-based economist with Bank of
America-Merrill Lynch, said of the implications of Singapore's forecast
for the rest of Asia.
"The fact that the tech exports were weak
will mean other Asian economies will also see tech exports being pulled
down," he told AFP.
Asia's fate will depend to a large degree on
whether Europe can contain its debt crisis which has engulfed large
economies including Italy and Spain, according to Chua.
Singapore's GDP was valued at S$284.6 billion in 2010, and total trade was more than three times as large.
"The
longer the European debt crisis drags out with no clear solutions, it
will have a negative impact globally," said Selena Ling, an economist
with Singapore's Oversea-Chinese Banking Corp.
"We are starting to see the impact come through."
The
MTI said it expects Singapore's electronics industry and other sectors
that rely heavily on overseas orders to remain under pressure despite
support from Asia's better-performing economies.
Even the financial services sector will be affected by heightened uncertainties in the external environment, it added.
The
forecast came as data released separately on Monday by the trade
promotion body International Enterprise Singapore showed electronics
exports tumbling 17 percent in the third quarter from a year ago.
The
ministry's downbeat projections for 2012 came as it released
third-quarter figures showing GDP grew 6.1 percent, an improvement from
1.0 percent in the second quarter.
Singapore is a significant
producer of high-end telecommunications and computer-related parts
shipped to the rest of the world as well as petrochemical and
pharmaceutical products.
"Within the manufacturing sector, the
electronics cluster is expected to register a lower level of output
given the downturn in the global electronics cycle," the MTI said.
Analysts
from Nomura financial services group said the government may step in
with a stimulus package when the next budget is unveiled in February
2012.
"The size of the stimulus will likely depend on how the
external situation unfolds from here... the likely path is such that the
first half will be weak before showing some recovery in the second half
when we expect the effects of the fiscal response to kick in," they
said in a report.
REYKJAVIK - Three
years after Iceland's banks collapsed and the country teetered on the
brink, its economy is recovering, proof that governments should let
failing lenders go bust and protect taxpayers, analysts say.
The
North Atlantic island saw its three biggest banks go belly-up in the
October 2008 as its overstretched financial sector collapsed under the
weight of the global crisis sparked by the crash of US investment giant
Lehman Brothers.
The banks became insolvent within a matter of
weeks and Reykjavik was forced to let them fail and seek a $2.25 billion
bailout from the International Monetary Fund.
After three years
of harsh austerity measures, the country's economy is now showing signs
of health despite the current global financial and economic crisis that
has Greece verging on default and other eurozone states under pressure.
"The
lesson that could be learned from Iceland's way of handling its crisis
is that it is important to shield taxpayers and government finances from
bearing the cost of a financial crisis to the extent possible,"
Islandsbanki analyst Jon Bjarki Bentsson told AFP.
"Even if our
way of dealing with the crisis was not by choice but due to the
inability of the government to support the banks back in 2008 due to
their size relative to the economy, this has turned out relatively well
for us," Bentsson said.
Iceland's banking sector had assets worth 11 times the country's total gross domestic product (GDP) at their peak.
Nobel Prize-winning US economist Paul Krugman echoed Bentsson.
"Where
everyone else bailed out the bankers and made the public pay the price,
Iceland let the banks go bust and actually expanded its social safety
net," he wrote in a recent commentary in the New York Times.
"Where
everyone else was fixated on trying to placate international investors,
Iceland imposed temporary controls on the movement of capital to give
itself room to maneuver," he said.
During a visit to Reykjavik
last week, Krugman also said Iceland has the krona to thank for its
recovery, warning against the notion that adopting the euro can protect
against economic imbalances.
"Iceland's economic rebound shows
the advantages of being outside the euro. This notion that by joining
the euro you would be safe would come as news to the Spaniards," he
said, referring to one of the key eurozone states struggling to put its
public finances in order.
Iceland's example cannot be directly compared to the dramatic problems currently seen in Greece or Italy, however.
"The
big difference between Greece, Italy, etc at the moment and Iceland
back in 2008 is that the latter was a banking crisis caused by the
collapse of an oversized banking sector while the former is the result
of a sovereign debt crisis that has spilled over into the European
banking sector," Bentsson said.
"In Iceland, the government was actually in a sound position debt-wise before the crisis."
Iceland's
former prime minister Geir Haarde, in power during the 2008 meltdown
and currently facing trial over his handling of the crisis, has insisted
his government did the right thing early on by letting the banks fail
and making creditors carry the losses.
"We saved the country from going bankrupt," Haarde, 68, told AFP in an interview in July.
"That
is evident if you look at our situation now and you compare it to
Ireland or not to mention Greece," he said, adding that the two
debt-wracked EU countries "made mistakes that we did not make ... We did
not guarantee the external debts of the banking system."
Like
Ireland and Latvia, also rescued by international bailout packages and
now in recovery, Iceland implemented strict austerity measures and is
now reaping the fruits of its efforts.
So much so that its
central bank on Wednesday raised its key interest rate by a quarter
point to 4.75 percent, in sharp contrast to most other developed
countries which have slashed their borrowing costs amid the current
crises.
It said economic growth in the first half of 2011 was 2.5
percent and was forecast to be just over 3.0 percent for the year as a
whole.
David Stefansson, a research analyst at Arion Bank, told
AFP Iceland hiked its rates because it "is in a different place in the
economic (cycle) than other countries.
"The central bank thinks
that other central banks in similar circumstances can afford to keep
interest rates low, and even lower them, because expected inflation
abroad is in general quite (a bit) lower," he said.
