Singapore Cuts Growth Forecast; Expects `Bumpy Year'

By Shamim Adam

Aug. 8 (Bloomberg) -- Singapore lowered its 2008 growth forecast for a second time this year as Prime Minister Lee Hsien Loong warned of a ``bumpy year ahead,'' saying a U.S. slowdown will hurt the global economy.

The Southeast Asian economy will grow between 4 percent and 5 percent in 2008, Lee said in a televised National Day message today. The government had earlier estimated an expansion of as much as 6 percent this year, after growth of 7.7 percent in 2007.

Asian manufacturers face declining demand as a housing recession and financial turmoil slow expansion in the U.S., the region's largest overseas market. Accelerating inflation and higher fuel costs have also left consumers around the world with less to spend on music players and digital cameras.

``U.S. consumers are spending less, and that is affecting the whole global economy,'' Lee said. ``The difficulties will probably drag on well into next year before getting better.''

The U.S. housing slump last year sparked a credit market rout that's still rippling through the global economy. Higher interest rates are causing housing-led expansions to crumble in the U.S. and Europe, and financial institutions worldwide have posted about $492 billion of credit losses and markdowns since the start of 2007, according to data compiled by Bloomberg.

``Singapore's economy has so far been partly buffered, because we have been carried along by the vibrancy of the Asian region,'' Lee said. ``But Asian economies are starting to feel the impact of America's problems, and so are we. We must therefore prepare ourselves for a bumpy year ahead.''

GDP Growth

Singapore's economy grew 1.9 percent in the second quarter from a year earlier, after expanding 6.9 percent in the first three months of 2008, according to initial government estimates on July 10. The trade ministry will release an updated second- quarter growth figure at 8 a.m. on Aug. 11.

Growth was 4.5 percent in the first half, Lee said today. That suggests the economy expanded about 2.2 percent in the second quarter from a year earlier, according to Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. Economists surveyed by Bloomberg News estimate the economy grew 2 percent last quarter.

``It's hard to be upbeat in this global environment,'' Song said. ``The Singapore dollar has certainly taken a hit because of the outlook on growth.''

The island's dollar fell the most in more than four years today on concern a slowing economy will prompt the central bank to favor a weaker currency.

Formula One

Singapore's consumer prices are climbing at the fastest pace in 26 years, and averaged 7.1 percent in the first half. The central bank in July raised its 2008 inflation forecast for a third time this year to a range of 6 percent to 7 percent.

``We cannot prevent these prices from going up, when prices are rising worldwide, and we import all our energy and food,'' Lee said. Singapore's inflation averaged 2.1 percent in 2007.

The island will play host to Formula One's first night Grand Prix in September and is building two casino-resorts, all aimed at tapping an increase in global travel. The government expects to double the number of overseas visitors to 17 million annually by 2015 and triple tourism receipts to S$30 billion ($21.4 billion) by then.

``These projects will create many good jobs, and keep our momentum up despite the uncertainties ahead,'' Lee said.

He also addressed the government's concern with a declining birth rate, as more Singaporeans choose to delay getting married and having children.

``We have implemented one measure after another over the years, but we have not succeeded in reversing the trend,'' the premier said. ``We have to take this very seriously. To secure our long-term future, we also need enough babies to replace ourselves.''

The island celebrates its 43rd year of independence tomorrow.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net