Singapore cut the upper end of its economic growth forecast for 2012 as a global slowdown from Europe to China weighs on the island’s expansion.
The Southeast Asian country’s gross domestic product will probably rise 1.5 percent to 2.5 percent this year, Prime Minister Lee Hsien Loong said in a televised message yesterday on the eve of the city state’s National Day. The government previously predicted growth of 1 percent to 3 percent. The economy grew 1.7 percent in the first half, he said.
“Europe and the U.S. face serious economic problems,” Lee said. “Asia is doing better than other regions, but China and India are slowing down.”
Policy makers across the world are girding for a deeper impact from Europe’s sovereign-debt crisis, with Asian central banks from China to South Korea and the Philippines cutting interest rates last month. Singapore remains vulnerable to fluctuations in overseas orders for manufactured goods even as the government boosts financial services and tourism, and the central bank in July warned growth may be below 1 percent should the global economy worsen significantly.
The island’s GDP probably expanded 0.5 percent in the second quarter from the first, according to the median estimate of 11 economists surveyed by Bloomberg News. Initial government figures released last month showed a 1.1 percent decline. Revised data will be released Aug. 10.
“Weak external demand on account of the economic turmoil in the euro zone and the fading growth momentum in the U.S. continues to weigh on the growth pace of the economy,” Irvin Seah, a Singapore-based economist at DBS Group Holdings Ltd., said in an e-mail this week. “Though sectors such as the retail and tourism related services have remained fairly resilient, growth momentum in sectors such as wholesale trade, transportation services and financial services are moderating.”
Temasek Holdings Pte, the state-owned investment company, said last month profit declined 16 percent in the fiscal year through March as contributions from units fell amid the global slowdown. The benchmark Straits Times stock index slipped 4.4 percent in the second quarter.
Singapore will celebrate its 47th year of independence today with an annual parade of tanks, artillery, fighter jet and firework displays. Lee’s speech focused mainly on domestic issues as the country wrestles with rising costs and the integration of immigrants.
The city has added about 1 million people since the beginning of 2005 as the government allowed more immigration to make up for a declining birth rate, angering Singaporeans who blame the foreigners for crowded transportation, rising home prices and competition for jobs.
With about 3.3 million citizens and 2 million foreign residents, the government is under pressure to placate voters without disrupting the influx of talent and labor that helped forge the only advanced economy in Southeast Asia.
“We are managing the inflow to minimize the strains on our infrastructure and society,” Lee, 60, said in his speech yesterday. “But Singaporeans must remain confident and open, and welcome those who will strengthen our team and help us and our children do better.”
The prime minister pledged the ruling party will change the way it governs after returning to power in May last year with the smallest victory since independence.
In the past year, Lee’s government has implemented stricter policies on foreign workers and cut ministerial pay. The administration has raised property taxes for non-Singaporeans and accelerated construction of housing.
In this year’s budget unveiled in February, Lee also made permanent a program to provide cash, utility rebates and medical funds for the elderly and low-income households.
“These are not one-off gestures, but a carefully designed package which lays the basis for stronger safety nets for the future,” Lee said, referring to the budget measures. “We will build on these initiatives in a sustainable way. The government will do more but it cannot do everything.”
Income inequality in Singapore has risen since 2000. The average monthly wage for the poorest 10 percent of households increased by S$250 ($201) to S$1,581 in the decade to 2011, compared with a S$10,400 jump to S$27,867 for the top 10 percent.
Last month, Lee announced the restructuring of three ministries to focus on boosting social safety nets and communication of government policies.
The prime minister said yesterday he has asked a team of younger ministers to take a “fresh look” at what the country needs to do to prepare for the future. The country must review its policies “more broadly,” particularly on social and education issues, Lee said.
“Core values such as meritocracy, multi-racialism and financial prudence cannot change,” he said. “But within these broad principles, we should review what needs to change and where we should act more boldly.”