The economic outlook for Singapore may not be quite so rosy. Recent news have not been encouraging.
Singapore economy hit by worst contraction in 5 years
Koh Gui Qing
Reuters, 10 Jul 08
Singapore’s economy suffered its steepest decline in five years in the in the second quarter, down an annualised, seasonally adjusted rate of 6.6 percent — much stronger than economists had expected.
Economists had forecast the economy to shrink about 1 percent in the quarter, hurt by a slump in pharmaceutical production and electronics manufacturing.
Singapore is the first Asian country to report quarterly GDP data and its heavy dependence on trade make the $160-billion economy a good gauge of the impact of a slowdown in the United States and Europe on Asia.
“The drag was almost entirely due to drugs, but we are most likely to see a rebound in drugs in the third quarter and that should pull the GDP number up,” said Song Seng Wun, an economist at CIMB. “We have cut out full-year growth forecast to 4.6 percent from 5.7 percent.”
The Singapore dollar weakened on the news and was trading at 1.3616 to the U.S. dollar after the data, compared with 1.3588 before.
Song said he expected no change in Singapore’s monetary policy at the next review in October because the contraction was caused by undershooting of the biomedical sector and a change in policy would not help.
The advance estimate is largely based on the first two months of the quarter.
“The electronics cluster also registered some decline, mainly because of weakening foreign demand. However, other industries such as transport engineering and chemicals continued to grow,” the trade ministry said in a statement.
That shrinking feeling?
Despite the bleak reading, the worst since the second quarter of 2003 when the economy shrank 7.8 percent, economists expect Singapore to avoid a recession — usually defined as two consecutive quarters of contraction.
They said activity generated by a Formula One Grand Prix motor race, which the island hosts in September, will help.
Economies across the world, already strained by the credit crunch, have been further hit by high energy and food prices, which are hurting corporate profits and consumer demand and driving inflation to multi-year highs.
Asian economies, many of which rely on exports, are bracing for slower growth this year, with healthy growth in the region’s powerhouses such as China offering less of a cushion than originally anticipated.
South Korea cut its 2008 growth forecast earlier this month to 4.6 percent, the slowest pace since 2005, citing soaring commodity prices and weaker exports.
Singapore saw exports drop in May at its sharpest rate in 2 years. Shipments to Europe and the United States — which make up a third of all exports sold — were the hardest hit, but exports to other major markets, including China also fell.
In an annual comparison the economy grew 1.9 percent in the second quarter, slower than a 3.1 percent forecast in a Reuters poll and slowing from 6.9 percent in the first quarter.
The economy expanded at a seasonally adjusted and annualised rate of 15.6 percent in the first quarter, bouncing from a 4.8 percent dip in the final three months of 2007.
Singapore Tourism Chief “Very Concerned” about visitor arrivals
Bloomberg, 11 Jul 08
Singapore is “very concerned” that the growth in visitor arrivals is slowing and is keeping a close watch on how it may affect the government’s target for travelers to the island-state this year, tourism chief Lim Neo Chian said.
Growth in visitor arrivals eased to 0.8 percent in April and May, the slowest expansion in a year, according to data from the Singapore Tourism Board. Visitors from Indonesia, Singapore’s biggest visitor-generating nation, fell 12 percent in May, the steepest decline among the city’s largest markets.
“The growth rate has eased a little bit,” Lim, the tourism board’s deputy chairman, said in an interview in Singapore today. “The overall general environment is obviously very challenging in many of our key markets. We’re very concerned and monitoring very carefully.”
Singapore may have fewer visitors than expected as inflation and a weaker global economic outlook curb travel plans. This may put at risk the city-state’s target for tourist arrivals to increase 5 percent to 10.8 million this year. The city also expects the number of visitors to rise to 17 million by 2015 with new attractions including two casino-resorts.
“It’s a little bit too rushed and too quick to change our target,” Lim said. “It depends how big a drop” the Singapore tourism industry will face.
Asian policy makers are predicting expansion this year will be at the lower end of their targets or are cutting growth forecasts as they increase estimates for inflation. Singapore’s economy expanded at the slowest pace in five years in the second quarter as a 26-year high inflation constrained spending.
Indonesia, Southeast Asia’s largest economy, may have expanded 6.1 percent in the second quarter, the slowest pace in more than a year, Finance Minister Sri Mulyani Indrawati said July 9.
Singapore may revise 2008 inflation forecast of 5-6 pct – minister
Thomson Financial, 9 Jul 08
Singapore may revise its 2008 inflation forecast of 5 to 6 percent if oil and food prices continue to escalate, Minister for Finance Tharman Shanmugaratnam said late Wednesday.
Inflation in the city-state has been running at a 26-year high in April and May, with the consumer price index (CPI) up 7.5 percent from a year ago, although the government expects inflation to ease in the second half of the year as the base effect of the 2 percentage point hike in the goods and services tax implemented since July last year wears off.
“However, the recent sharp rise in global oil prices will add pressure on inflation. And no one can rule out further increases in oil prices in the second half of the year,” Shanmugaratnam said in a speech at a union event.
“We are monitoring this and the impact on prices of the goods we import and on our CPI inflation, and will decide if the inflation forecasts for this year need to be revised.”
Singapore manages inflation via its foreign exchange policy but the minister say there is a limit to the tool’s effectiveness against inflation.
“Since the beginning of 2007, the Singapore dollar has appreciated by 11 percent against the U.S. dollar. However, there is a limit to how much we can allow the Singapore dollar to rise to fight inflation that is caused by higher oil and imported food prices,” Shanmugaratnam said.
A dramatic strengthening of the Singapore dollar will also hurt the city-state’s exports growth, he said.
The Monetary Authority of Singapore will next review its monetary policy in October.
Tharman: Pay rises no cure for inflation
Goh Chin Lian
Straits Times, 10 Jul 08
Improving workers’ productivity to help them earn more is better, he says
Singapore must guard against a second round of inflation, which could happen if wages are raised to keep pace with price increases.
Finance Minister Tharman Shanmugaratnam issued the warning yesterday, noting that Singapore prefers to fight inflation in the medium term by having a strong Singapore dollar to ward off imported inflation.
The lasting solution to inflation is to improve workers’ productivity so they can command higher wages, he added.
Meanwhile, the Government will give help directly to those who most need it, instead of trying to bring inflation down for every one as a whole, he said to a gathering of 500 unionists.
Mr Tharman’s call for restraint comes at a time when workers – especially those in manufacturing, transport and administrative jobs – see inflation eroding their wages, and could press for more pay.
Despite wages rising by close to 11 per cent in the first three months of this year, real wages in some sectors fell after accounting for inflation that has reached beyond 6 per cent, according to a recent Manpower Ministry report.
Inflation is forecast to slide later this year, but meanwhile imported food prices have risen 10 per cent compared to a year ago, and petroleum products are 64 per cent higher, notedMr Tharman.
Still, upping wages to offset inflation was no cure as it would simply cause employers to pass the costs on to consumers as well as dent Singapore’s competitiveness, he said.
In a separate interview with The Straits Times, Manpower Minister Gan Kim Yong said: ‘We have learnt from our experience in the 1970s and 80s.’
When wages rose in response to inflation, bosses upped prices, leading to a wage-price spiral then.
Mr Tharman cited some figures yesterday to show how low- and middle-income families can more than offset inflation with government help.
In one example, a middle-aged couple earning $4,900 will spend $3,000 more, but get $3,600 in benefits and top-up to pay for two children’s post-secondary education.
Mr Tharman was speaking at a dinner organised by the Singapore Industrial and Services Employees’ Union, which had elected a new executive committee that afternoon.
He is the chairman of the union’s council of advisors.
Deputy president Philip Lee, 51, said his union would not push for higher wages because economic prospects were uncertain. ‘If jobs are not coming in, employers may retrench workers,’ he said.
The government’s latest forecast for the economy this year is growth of 4 to 6 per cent, down from 4.5 to 6.5 per cent earlier this year.
Some analysts expect the forecast to be pared down further as oil prices hit new highs and more developed economies join the United States in recession.