Singapore Lifts 2007 Forecast; 4th Qtr Tops Estimates

Singapore raised its 2007 growth forecast after the pace of expansion doubled in the fourth quarter, boosting optimism the government will use the longest expansion in six years to announce a cut in corporate taxes.

Southeast Asia's fourth-largest economy may grow 4.5 percent to 6.5 percent in 2007, above an earlier estimate of 4 percent to 6 percent, the trade ministry said today. Annualized growth in the three months ended December was 7.9 percent, accelerating from a revised 3.9 percent in the previous quarter.

Record tourist arrivals and job creation are spurring the expansion of Singapore's $134 billion economy, giving Prime Minister Lee Hsien Loong room to lower taxes for companies and raise those on goods and services, or GST, in a budget to be delivered tomorrow. The government says improving global economic conditions should also help sustain growth this year.

``The good economic outlook is an indication the government will implement tax cuts or GST hikes sooner rather than later,'' said Song Seng Wun, an economist at CIMB-GK Research in Singapore. ``The U.S. economy is on an even keel, and we are seeing a similar case in China as well. It points to a more stable period where growth is not likely to fall off a cliff.''

From a year earlier, Singapore's $134 billion economy expanded 6.6 percent in the fourth quarter after growing 7 percent in the previous three months. The government previously estimated a 5.9 percent increase. The economy grew 7.9 percent for the year, faster than the initial forecast of 7.7 percent.

Conditions Improving

``The global economic conditions have improved over the last few months,'' the trade ministry said. ``In the U.S., fears of the housing market correction spilling over to the wider economy have subsided with a pickup in housing sales. In Asia, China and India are expected to see continued strong growth.''

Economic growth in the U.S., Singapore's single largest market, accelerated to a faster-than-forecast annual pace of 3.5 percent in the fourth quarter from 2 percent in the previous three months. China's economy expanded 10.7 percent in 2006.

Manufacturing, which accounts for a quarter of Singapore's economy, rose 7.7 percent in the fourth quarter from a year earlier, faster than the government's Jan. 3 estimate of 7.3 percent. Production growth slowed from a revised 9.5 percent in the third quarter.

Services grew 6.6 percent and construction gained 4.7 percent in the fourth quarter, today's report said.

Policy Shift

The government is trying to enhance Singapore's role as a regional financial services and tourism hub as manufacturers shift jobs to lower-cost countries like China. Most retrenchments have been in manufacturing and this will continue as the industry restructures, Ng Wai Choong, the trade ministry's deputy secretary for industry, told reporters today.

Singapore is building attractions ranging from casino- resorts to the world's largest Ferris wheel to attract tourists and boost domestic consumption, reducing dependence on overseas sales of computer chips, disk drives and telecommunication parts.

``It's a deliberate policy by the government to diversify the economy more towards services which will be sheltered to a greater extent from the world trade cycle,'' said Robert Prior- Wandesforde, an economist at HSBC Holdings Plc. in Singapore. ``It's not all about manufacturing and exports anymore. Retail and tourism sectors are doing quite well.''

The government may announce a cut of at least one percentage point off its current 20 percent corporate tax rate, narrowing its gap over Hong Kong's 17.5 percent rate. The government has also signaled plans to raise the goods and services tax by 2 percentage points to 7 percent.

Retail Sales

A record 9.7 million tourists visited Singapore last year, generating S$12.4 billion in receipts, giving a boost to the city's hotels, restaurants and department stores.

Sales for retailers such as Robinson & Co Ltd. and FJ Benjamin Holdings Ltd. increased as an accelerating economy boosted employment and wages. Credit-card billings last year rose 16 percent to S$18.6 billion ($12.1 billion).

``Consumer spending has come in quite strongly, especially toward the end of the year,'' Alvin Liew, an economist at United Overseas Bank Ltd. in Singapore, said before the release of today's report.

The economy, which added a record 173,300 jobs in 2006, will see the unemployment rate between 2.5 percent and 3 percent this year, the trade ministry said today. The jobless rate was 2.6 percent in the fourth quarter.

Home Prices

Home prices are also climbing, benefiting developers such as CapitaLand Ltd. and City Developments Ltd. Residential prices rose about 10.2 percent last year, the biggest increase since 1999, according to government data.

The property boom is boosting the construction industry, which is seeing demand as attractions ranging from casino- resorts to the world's largest Ferris wheel are built.

Las Vegas Sands Corp., the world's biggest casino-operator by market value, and Genting Bhd. are building two integrated resorts in Singapore. The resorts, when completed by 2010, are expected to help meet the government's target of drawing 17 million tourists by 2015 and more than double tourism spending to S$30 billion.

source:www.bloomberg.com