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ECONOMIC OUTLOOK

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					     Chapter 4

     ECONOMIC OUTLOOK

      LEADING INDICATORS
      [Table A14.1 and Chart 4.1]
      CLI posted robust gains…

      The composite leading index (CLI) increased 3.4 per cent in the second
      quarter, up from the 3.0 per cent increase in the previous quarter.

      Of the nine components within the index, eight posted gains (viz stock of
      finished goods, money supply, stock price, US Purchasing Managers’ Index,
      new companies formed, wholesale trade, non-oil sea cargo handled and
      non-oil retained imports). Only domestic liquidity experienced a decline
      from the last quarter.

       GROSS DOMESTIC PRODUCT AND
       COMPOSITE LEADING INDEX (2000=100)
       [Chart 4.1]
       Index
       150


       140


       130
                                            GDP

       120

                                       Leading Index
       110


       100
               I  II   III   IV     I  II   III   IV     I  II   III   IV     I  II
             2004                 2005                 2006                 2007



      BUSINESS EXPECTATIONS
      [Chart 4.2]
      Optimistic outlook in both manufacturing and services sectors…

      MANUFACTURING
      [Table A14.2]

      The manufacturing sector is optimistic about business condition in the
      second half of 2007. A net weighted balance of 22 per cent expects
      improved business conditions compared to 26 per cent in the previous
      quarter and in the same period last year.




36
                                                                                                ECONOMIC OUTLOOK


GENERAL BUSINESS SITUATION
FOR THE NEXT SIX MONTHS
(NET WEIGHTED BALANCE OF FIRMS)
[Chart 4.2]
Per Cent
40



30


                     Services
20


                                Manufacturing
10



 0
       I  II   III    IV     I  II     III   IV     I  II   III   IV     I  II
     2004                  2005                   2006                 2007



Business expectations in the electronics cluster for the second half of 2007
remains generally positive, albeit with some moderation in sentiments                                 Business expectations
among chip-makers. A net weighted balance of 34 per cent of                                           in the manufacturing
manufacturers in this cluster predicts better business conditions in the                              sector remain positive...
next six months ending December 2007, compared to 38 per cent a quarter
ago. The positive sentiment is reflected in all segments of the cluster, with
output expected to rise over second quarter levels, in line with the
traditionally stronger third quarter ramp up for the year-end holiday season.

As for the transport engineering cluster, a net weighted balance of 25
per cent of firms expects business climate to improve, similar to the 26
per cent in the preceding quarter. The marine and offshore engineering
segment remains optimistic. Likewise, the aerospace segment expects an
increase in engine overhaul and repair works, with demand driven primarily
by overseas customers. Output in the land transport segment is however
expected to fall on a quarter-to-quarter basis, according to contractual
delivery schedules.

Business outlook in the precision engineering cluster is weaker for the
next six months ending December 2007, relative to the previous quarter.
The machinery and systems segment anticipates output to rise in the third
quarter over second quarter, in response to expected increases in export
orders. In the precision modules and components segment, however, third
quarter levels are expected to remain the same as in the second quarter.

The biomedical manufacturing cluster’s business outlook is expected to be
fairly stable. Pharmaceuticals production is expected to rise on a quarter-
on-quarter basis to meet third quarter deliveries. In anticipation of increased
exports, the medical technology segment also expects production to
increase in tandem with some draw-down of finished good stocks.




                                                        ECONOMIC SURVEY OF SINGAPORE SECOND QUARTER 2007             37
     The business situation of the chemicals cluster is expected to remain largely
     the same. Positive sentiments in the specialties and other chemicals
     segments were muted by worsening expectations in the petrochemicals
     segment, caused by rapid increases in raw material prices and the inability
     to pass cost increases down to customers. Similarly, the output forecast
     for specialties and other chemicals in the third quarter is expected to
     increase over the preceding quarter due to global demand. However,
     several planned maintenance shutdowns by petrochemicals manufacturers
     are expected to result in lower output in the third quarter compared to
     the preceding quarter.


     SERVICES
     [Table A14.3]

     A net weighted balance of 28 per cent of firms in the services sector
     expects more favourable business conditions in the second half of 2007
     compared to the preceding six months. This is more optimistic than the
     22 per cent registered for April to September 2007, as well as the 23 per
     cent in the second half of 2006.

     In line with continued buoyant sentiments in the property market, a net
     weighted balance of 65 per cent of firms in the real estate industry expects
     the business climate to improve. Real estate developers and agents are
     particularly optimistic.

     Sentiments in the tourism market likewise remain strong. A net weighted
     balance of 65 per cent of firms in the hotels and catering industry foresees
     better business conditions ahead.

     The outlook is also positive for the financial services sector, especially for
     banks and finance companies, fund management firms, and insurance
     companies. Overall, a net weighted balance of 30 per cent of firms expects
     business activity to increase.

     Among wholesalers, a net weighted balance of 28 per cent of firms expects
     better business prospects. A wide range of firms, including dealers of
     tropical produce, wearing apparel and footwear, household electrical
     appliances and equipment, and books and magazines expect better
     business conditions.

     Similarly, a net weighted balance of 25 per cent of firms in the business
     services industry is positive about their business outlook. These include
     firms engaged in the renting of construction and industrial machinery,
     architectural and engineering services, specialised design firms and travel
     agencies.

     In the information and communications industry, a net weighted balance
     of 23 per cent of firms expects an increase in the demand for their services.
     These include network operators and firms engaged in data communication
     services.




38
                                                                                     ECONOMIC OUTLOOK


Within the transport and storage industry, a net weighted balance of 17
per cent of firms expects increased business activity. Firms providing water
transport and supporting services, as well as post and courier services
expect to do well.

As for retailers, a net weighted balance of 2 per cent is optimistic about
the business outlook. Department store and supermarket owners, as well
as retailers of wearing apparel and footwear, and jewellery and watches
expect higher sales. In contrast, retailers of motor vehicles are less optimistic.


CONCLUSION
2007 growth expected to be 7.0–8.0 per cent…

The global economic environment continues to be healthy. Economic
growth in the US remains intact. The Japanese and EU economies continue
to recover on the back of strong domestic demand and firm business
sentiment. Prospects in Asia remain robust, with the Chinese economy
growing at a rapid pace. But some downside risks remain, such as a large
negative spillover from the US housing market and potential negative supply
shocks in oil. Reflecting the favourable external environment, both
manufacturing and services firms continue to expect better business
conditions in the next half of the year. The consensus forecasts in the                  Economic outlook is
market for Singapore’s GDP growth are creeping upwards while the                         positive...
composite leading index continues to increase.

Taking into account these factors, the Ministry of Trade and Industry has
raised the full-year GDP growth forecast for 2007 from 5.0–7.0 per cent
to 7.0–8.0 per cent. The improved outlook reflects higher growth in
financial and business services, manufacturing, and construction. The driving
factors underpinning the higher forecast are broad-based: strong global
demand in the biomedical, aerospace and marine industries, robust regional
demand for financial services, and a buoyant domestic property market.




                                           ECONOMIC SURVEY OF SINGAPORE SECOND QUARTER 2007           39

				
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