S'pore sees no recession from riot-jolted Indonesia

S'pore sees no recession from riot-jolted Indonesia

SINGAPORE (Reuters): Singapore said yesterday it expected its economy to grow by between 2.5 and 4.5 percent this year, despite the financial crisis sweeping across Southeast Asia in recent months.

The Ministry of Trade and Industry said it was maintaining the projection, which it first made in February, assuming there was no major change in the external environment.

If the forecast was correct, the economy would still see a significant slowdown from the 7.8 percent growth in gross domestic product (GDP) achieved in 1997 and its double-digit expansions of the early 1990s.

The ministry said the regional outlook was uncertain but it hoped the island's growth would pick up at the end of this year.

But economists said Indonesia was becoming a major worry and the economic and social turmoil there could have a significant impact on Singapore's economy.

They said the forecast might be too optimistic in light of recent events in Jakarta.

More than 500 people died during Indonesian rioting and protests last week and there are growing calls for Indonesian President Soeharto to quit after 32 years in power. Further demonstrations against Soeharto are planned for this week.

"The regional economic slowdown has begun to bite," the ministry said in a statement.

"Overall economic growth will weaken further during the year as the impact of the regional economic turmoil filters through the economy. There remains much uncertainty over the regional political and economic situation."

A spokesman for the ministry told a news conference economic growth had been slowing and would continue to slow over the second and third quarters against the higher base of 1997.

But he added a note of optimism.

"We hope to see some pick up in the later part of the year going into next year," he said.

Singapore has been relatively unaffected by the Asian financial crisis so far. Its currency, the Singapore dollar, has fallen 13 percent since July 1997, compared with around 75 percent for the Indonesian rupiah and about a third for the Malaysian ringgit, Thai baht and Philippine peso.

Most of Singapore's manufacturing is related to the electronics industry and its exports tend to go to the United States and Europe, now enjoying healthy growth.

But the island is not immune to the region and economists suggest the turmoil in neighboring Indonesia could shave as much as two percentage points off Singapore's growth this year.

"I think the exposure of Singapore to Indonesia is not fully discounted by the markets," Chia Woon Khien, analyst at S-E- Banken, said on Sunday. "Around the region, Singapore is going to be worst affected if Indonesia completely collapses."

Indonesians have investments and property in Singapore estimated at around Singapore S$5 billion (US$3 billion) and some 16 percent of tourist arrivals in the island are from Indonesia, worth about S$950 million a year.

Private economic forecasts for Singapore are for growth of about three percent but some of these have been revised down in recent weeks.

Economists said Singapore growth has been fairly steady in the first half of this year but could suffer badly when the full effects of the regional crisis are felt.

"The real test for Singapore's economy is in second half 1998," said Liew Yin Sze, economist at J.M.Sassoon.

The ministry said in its statement that Singapore's "hub services" such as the transport and financial sectors were expected to slow further.

Segments in the commerce sector such as retail, restaurants and hotels, would also be affected by a decline in visitor arrivals and weaker consumer sentiment.

But it said manufacturing should continue to derive some support from strong growth in the United States and the European Union. Construction would also be supported by public sector projects awarded over the past two years, it said.

"The communications industry is also likely to continue enjoying healthy growth," it said.

The ministry said Singapore's unemployment rate rose slightly to 2.2 percent in March, up from two percent in December 1997.