Taming of the Asian lion

The Lion City - once one of Southeast Asia's most ferocious economies - seems to have been tamed for a second straight year.

Its putative recovery is running out of steam and questions are already piling up from some observers about the first half of 2003.

The low preliminary economic growth estimate for the third quarter - released last week - caught most economists by surprise and triggered a rash of hefty downgrades to full-year figures. Consensus now stands at 2.3 per cent gross domestic product growth for this year compared with earlier forecasts of 4.3 per cent, according to a survey of seven banks.

'We are cutting our 2002 GDP forecast to 2.3 per cent from 4.3 per cent previously and our 2003 GDP forecast to 3.1 per cent from 5.8 per cent,' said ABN Amro economist Lim Cheang Yee. 'These are to account for the weak third-quarter number and to adopt a more cautious view on the nearer-term outlook of the manufacturing sector and external demand.'

The source of the rethink was the lower than expected 3.7 per cent year-on-year third-quarter expansion, about half the rate that most economy-watchers were hoping for. More troubling was the 10.3 per cent quarter-on-quarter contraction, which suggests the current upturn may have run its course.

There have been faint warning signs in the macro-economic numbers in recent weeks, but nothing that prepared people fully for the drop in growth momentum. Industrial production data and non-oil domestic exports for August were down on the month before. Additionally, the August figure for non-oil retained imports - a leading indicator for manufacturing - was an anaemic 0.6 per cent month-on-month.

'The leading indicators were already turning down,' said Manu Bhaskaran, head of economic research at the Centennial Group. 'But they pointed to weakness in the fourth quarter, not the third.'