Issuu on Google+

Tuesday, 20 January 2009

Asian Daily Singapore Economics ----------------------------------------------------------------------------------------Population fall I: 200,000 foreigners and permanent residents might leave Singapore during 2009-10 Cem Karacadag / Research Analyst / 65 6212 3707 / cem.karacadag@credit-suisse.com Kun Lung Wu / Research Analyst / 65 6212 3418 / kunlung.wu@credit-suisse.com

! On 19 January, we published a report showing why 200,000 foreigners and permanent residents (PR) might leave Singapore in 2009-10 and reduce its population by 160,000 to 4.68 mn (from 4.84 mn). ! Since mid 2003, Singapore’s population surged 724,600 (17.6%) to 4.839 mn, over 75% of which was attributable to a 546,700 (48%) jump in foreigners and PRs. New jobs attracted foreigners and PRs, which fueled the population surge during 2004-08. ! We think this chain of causality will reverse itself during 20092010, with sizable job losses leading to population loss. Foreigners and PRs drive population up

From mid 2003 to mid 2008, Singapore’s population surged 724,600 (17.6%) to 4.839 mn. Foreigners and PRs drove Singapore’s population up. Over 75% of the total population increase during 200308 was attributable to a 546,700 (48%) jump in foreigners and PRs (Figure 1). The size and speed of the recent population increase has been unprecedented according to census data going back to 1982. Figure 1. Population change by residential status (‘000, mid yr to mid yr) 250

Population change of Singapore citizens

200

Population change of foreigners and permanent residents 30

100 50 0

-15 -46

-50

16 36

75

‘000, year-end levels, unless otherwise stated

77 220

24 106 110

20

20

-100 -100

-100 1998

2000

2002

2004

2006

2008

2010E

Source: Department of Statistics, Credit Suisse estimates

Foreigners and PRs came to Singapore to fill new jobs

We estimate that foreigners and PRs filled 484,700 or 61% of the 796,000 in new jobs created during 2004 to 3Q08 (Figure 2). Almost all (89%) of the increase (546,700) in foreigners and PRs from 2003 to 2008 was because they filled new jobs (484,700) during 2004-3Q08. Figure 2: Employment change by residential status (‘000, calendar year) 250 150

New employment of Singaporean citizens New employment of foreigners and permanent residents* 92 77 65 111

50

143

123

-50

-100

-100

-150

-50

-50

2002 2003 2004

2005

2006

2007

The contraction in exports and output and consolidation in financial and business services, could lead to sizable job losses, which, in turn, may drive as many as 200,000 foreigners and PRs out of Singapore. This forecast is based on three – and we think plausible – assumptions. In services, of the estimated 247,000 new jobs foreigners and PRs filled during 2004-3Q08, we reckon 50,000 will be lost in 2009 and another 50,000 in 2010. This would amount to 16% of the 662,000 of foreigners and PRs working in services losing their jobs (Figure 3). In manufacturing, of the estimated 164,400 new jobs foreigners and PRs filled during 2004-3Q08, we reckon 50,000 will be lost in 2009 and another 20,000 in 2010. This would mean 19% of the 371,000 of foreigners and PRs working in manufacturing losing their jobs. These levels of job losses and population decline would be unprecedented. As harsh as our assumptions may seem, they only imply that the economy gives up all of the jobs it created in 2008 and a portion of the new jobs in 2007. Employment would still be above its level at end 2006. This would be consistent with real output falling back to a level somewhere between its levels in 2006 and 2007. Figure 3: Employment by sector and residential status, 1997-2010

31

150

Job losses to drive population loss

2008 2009E 2010E

Source: Ministry of Manpower, Credit Suisse estimates * 2007 and 2008 figures are our estimates based on our extrapolation from actual data from 2004-06. For example, employment of foreigners and PRs in services accounted for 59.3% of new services jobs during 2004-06. On this basis, we assume that 60% of new jobs in services went to foreigners and PRs during 2007 and Q1-Q3 2008.

2006

2008E 2010E

2008-10 2008-10

chg (‘000) chg (%) 2631 -300 -10.2 1570 -100 -6.0 1061 -200 -15.9

Total 2496 2931 Singapore citizens 1499 1670 Foreigners and PRs 997 1261 Services Total 1707 1969 1809 -160 -8.1 Singapore citizens 1176 1307 1247 -60 -4.6 Foreigners and PRs 531 662 562 -100 -15.1 Manufacturing Total 517 620 520 -100 -16.1 Singapore citizens 229 249 219 -30 -12.0 Foreigners and PRs 289 371 301 -70 -18.9 Construction Total 256 322 282 -40 -12.4 Singapore citizens 80 93 83 -10 -10.7 Foreigners and PRs 175 229 199 -30 -13.1 Memoranda items* Financial services 127 160 Business services 423 538 Health, education, public admin., 241 264 social services** Source: Ministry of Manpower, Credit Suisse estimates *Data prior to 2006 are based on our extrapolation from employment change. **Health, education, and social services sectors are likely to include both public and private sector employment.

Now is different from the 1990s

Singapore experienced a similar bout of employment and population growth in the 1990s, yet it was not followed by big job or population losses. Why will this time be different? It is because the pattern and speed of job and population growth since 2004 has been unprecedented. It also coincides with a shock to sectors of the economy – services and manufacturing – that created the most jobs and that are most exposed to the drop in exports and global financial sector consolidation.

- 5 of 32 -


Tuesday, 20 January 2009

Asian Daily Singapore Market Strategy ---------------------------------------------- Maintain UNDERWEIGHT Implications of a fall in population Sean Quek, CFA / Research Analyst / 65 6212 3337 / sean.quek@credit-suisse.com Kwee Hong Ching / Research Analyst / 65 6212 3142 / kweehong.ching@credit-suisse.com

! CS economist Cem Karacadag now expects the Singapore economy to contract by 2.8% in 2009. In addition, 200,000 foreigners and permanent residents might leave Singapore during 2009-10, reducing its population by around 160,000 to 4.68 mn. The potential drop in employment and population would have farreaching implications for the economy. ! Within the Singapore market, we continue to avoid less defensive domestic plays. Sectors most exposed to a further slowdown in domestic demand include property, banks and consumer (including media) sectors. Within property, City Dev is the most exposed to the Singapore residential property space, in our view. A more U-shaped recovery could also impact SPH further. ! On the other hand, we continue to favour defensive names – excluding those more leveraged to the domestic economy. We remain OVERWEIGHT on telecoms and transport. Telecom (SingTel, M1 and StarHub) and land transport names (SMRT and ComfortDelgro) are domestic plays least sensitive to a decline in domestic demand. ! Our Singapore top picks remain SingTel, SIA and Wilmar. Least preferred names are COSCO, CCT and OCBC. Singapore’s population could drop to 4.68 mn by 2010

CS economist Cem Karacadag now expects the Singapore economy to contract by 2.8% in 2009, with the balance of risks remaining to the downside. In addition, according to Cem, 200,000 foreigners and permanent residents (PRs) might leave Singapore during 2009-10, reducing its population by around 160,000 to 4.68 mn. (%)

300

6.0

250

5.0

200

4.0 3.0

150

2.0

100

1.0

50

0.0

0

-1.0

-50

-2.0

-100

-3.0 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Change in total population [LHS]

15.0

10.0

5.0

0.0

-5.0

-10.0 2Q01 4Q01 2Q02 4Q02 2Q03 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 SG domestic demand YoY

GDP growth (%)

Source: CEIC, Credit Suisse estimates.

A drop in population, coupled with rising completions, CS Singapore property sector analyst Tricia Song sees private residential vacancy rates hitting 15% (versus the historical high of 9%) and residential property prices declining further from current levels. Figure 3: Private residential property – vacancy rate (%) 18 16

15.4

14 12 10

9.0

8 6

5.7

5.6

4

Figure 1: Population change (‘000, mid year to mid year) change in person ('000)

Figure 2: Singapore domestic demand vs GDP growth

Population growth [RHS]

Source: Department of Statistics, Credit Suisse

Negative for domestic demand

The potential drop in employment and population would have farreaching implications for the economy. Firstly, private consumption could contract in both 2009 and 2010. We are expecting private consumption growth to slow from the projected 4.2% in 2008 to 0.7% in 2009 and 1.8% in 2010. Unemployment rate could rise from 1.9% in 3Q08 to 5.6% by 2010, its highest level since 6.5% in 1986.

2 0

Source: URA, Credit Suisse estimates

Reiterate avoid less defensive consumer names

Within the Singapore market, we continue to avoid less defensive domestic plays. Sectors most exposed to a further slowdown in domestic demand include property, banks and consumer (including media) sectors. Banks remain our biggest UNDERWEIGHT and within banks we are UNDERWEIGHT OCBC. Within property, City Dev is the most exposed to the Singapore residential property sector, in our view. A more U-shaped recovery could also impact demand for advertising and, in turn, SPH’s earnings. We remain OVERWEIGHT on telecoms and transport

On the other hand, we continue to favour defensive names – excluding those more leveraged to the domestic economy. We remain OVERWEIGHT on telecoms and transport. Telecom (SingTel, M1 and StarHub) and land transport names (SMRT and ComfortDelgro) are domestic plays least sensitive to a decline in domestic demand. On a bottom-up basis, the MSCI should see 21% upside to 254 over the next 12 months. Our Singapore top picks remain SingTel, SIA and Wilmar. Least preferred names are COSCO, CCT and OCBC.

- 6 of 32 -


Singapore Population to fall by 200,000