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Singapore growth downgraded ahead of budget

Commuters stand inside a train at the Tanjong Pagar MRT station during rush hour in Singapore.
Nicky Loh | Getty Images
Commuters stand inside a train at the Tanjong Pagar MRT station during rush hour in Singapore.

Forecasters have slashed their growth expectations for Southeast Asia's leading financial hub just a week before the government presents the 2016 budget.

Private economists polled by the Monetary Authority of Singapore (MAS), the city-state's central bank, see gross domestic product (GDP) growth at 1.9 percent this year, down from a previous forecast of 2.2 percent in December and below last year's reading of 2 percent.

2015 marked the weakest pace of growth since the economy contracted 1.3 percent in 2009, so if GDP growth does slip below 2 percent this year, it will mark a new seven-year low.

Released on Wednesday, the quarterly survey was based on responses from 24 experts who closely monitor the local economy.

Still, the results painted a brighter outlook compared with predictions by major banks.

DBS, one of Southeast Asia's biggest lenders, recently cut its 2016 growth forecast to 1.5 percent, from 2.1 percent previously, while Morgan Stanley revised down its outlook to 1.8 percent, versus an earlier estimate of 2.3 percent.

The government will be paying close attention to these downgrades as it prepares to unveil the 2016 annual budget on March 24. New finance minister Heng Swee Keat is widely expected to channel the bulk of state funds towards reinvigorating GDP by helping local companies improve revenues.

"Singapore faces structural headwinds from the '3D' problem of debt, demographics and deflation," Morgan Stanley said in its ASEAN outlook report this week.

Indeed, the Lion City boasts rising highest household and public debt levels, an issue magnified by a rapidly aging population and 15 straight months of negative headline inflation as of January. But officials refrain from using the word deflation, preferring to focus on core inflation instead, which strips out oil and accommodation costs.

Wednesday's survey also revealed the median CPI inflation forecast sliding 0.2 percent this year, from a 0.5 percent rise estimated in the previous survey.

Among GDP components, manufacturing is set for the worst contraction this year at 2.7 percent, Wednesday's survey revealed. That follows a 5.2 percent decline last year, the worst performance since 2001.

"A structurally lower global GDP growth trend also exerts further downward pressure on an economy that has typically been a high-beta global proxy...The delay in export recovery suggests cyclical headwinds and that the economy is likely to decelerate further," Morgan Stanley added, referring to Singapore's export-oriented economy.

Although manufacturing is no longer the island-nation's primary growth driver, having been replaced by services, it remains a vital source of job creation and further contractions could hit the labor market. The sector already saw employment fall by 22,400 last year, according to DBS data.

Regarding jobs, the MAS survey sees the 2016 unemployment rate at 2.1 percent by year-end, unchanged from 2015.

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