In February 2001, MTI retained its earlier GDP growth forecast of 5-7 %, but noting the uncertain outlook, it stated that the actual growth was likely to be at the lower end of the forecast range. Since then, the economic outlook has turned less favourable due to the following factors:

  Weaker-than-expected US economic growth. The economic expansion in the US decelerated sharply from 5.6 % in the second quarter of 2000 to 1.0 % in the fourth quarter, due mainly to a fall in investment growth. The US economy is expected to have grown only marginally in the first quarter of this year. The prevailing view among economic forecasters is that the US is likely to grow by about 1.9 % this year, down from the forecast of 2-2.5 % in February 2001. The US slowdown will have an impact on the regional countries and indirectly dampen our exports to these economies. Our hub services, which are more regionally-oriented, will also be affected. MTI estimates that the downward revision in US growth and its indirect impact will shave about 0.4 %-point off Singapore’s GDP growth.

  Faster-than-expected downturn in the global electronics cycle. Worldwide semiconductor sales have slowed rapidly, from a growth of 22 % in December 2000 to 5.8 % in February 2001 (year-on-year, 3-month moving average) due to inventory overhang and weak end-product demand. The correction in the memory cycle was especially sharp. This has prompted industry analysts to successively downgrade their growth forecast of global semiconductor shipment for 2001, with some projecting a contraction.

  Due to market saturation and weak demand, the US PC market grew by 0.3 % in the fourth quarter of 2000, down from 9.4 % in the third quarter. This does not bode well for our PC industry as the US accounts for 38 % of our exports of data processing machines.

  Given that electronics makes up about half of our manufacturing output, the sharper-than-expected downturn in global electronics will directly impact our manufacturing growth this year. It will also feed through to a range of other related industries like precision engineering, airfreight and wholesale trade.

  In addition, as the outlook for the sector weakens, some capacity expansion projects in the electronics and supporting industries may take longer to come on stream.

  Overall, the deceleration in electronics demand is likely to reduce up to 0.9 %-point from the earlier growth forecast.

  MTI has therefore revised the 2001 growth forecast from 5.0-7.0 % to 3.5-5.5 %. The final outcome will depend on how soon and how strongly the US economy and the electronics industry rebound in the second half of the year. MTI is maintaining a close monitor of the economic situation.

  Ministry of Trade & Industry

10 April 2001