OUTLOOK FOR 1989

Overall growth in 1988 would have been higher if the manufacturing sector had not slowed down to 9% in the fourth quarter, from about 20% in the first three quarters. The slow-down was confined to the manufacturing sector, due mainly to external demand factors such as the world wide over-capacity in the disk drive industry and lower demand in the petroleum industry.

The latest, first quarter 1989 survey of business expectations, suggests that the slow-down in manufacturing will continue into the first half of 1989. Respondents to the survey from the services sector were also less optimistic about business prospects in the first half of 1989 than in the last survey.

We believe that the growth in 1989 will be slower than in 1988. Due to resource constraints, our long term growth rate is still expected to be between 4% to 6%. Moreover, the general consensus is that while a world recession is unlikely in 1989, world economic growth will be slower. The policy adjustments announced in November 1988 on CPF and foreign workers were made on the basis of slower growth.

Our estimated growth for 1989 is between 6% and 7%, closer to our long term growth rate of 4 to 6%, and also to what the other NICs expect for 1989; South Korea, 8.5%, Taiwan, 7% and Hong Kong, 6%.