BIG ISSUE 1
N E M I PEC
Is Singapore fully out of the economic slump? Unfortunately, more headwinds loom in 2013.
he Singapore economy in Q4 2012 grew 1.8% versus the previous quarter, amid analysts’ calls for yet another contraction which would have pushed Singapore into a technical recession. For the full-year 2012, the economy expanded 1.2% from 2011. Despite this fourth-quarter turnaround, experts believe that Singapore may not be fully out of the slump. A market specialist at OANDA, an international forex broker, points to the manufacturing sector contracting by 10.8% annualised and extending its losing streak to three consecutive quarters as a major concern. But with the global economy potentially picking up at the start of 2013 due to cheers of a “fiscal cliff” deal, the OANDA market specialist believes the manufacturing sector will readily pick up especially since Singapore’s manufacturing focuses mainly on mid-higher tier technological goods with high beta coefficients. Cyclical improvement UBS economist Edward Teather, meanwhile believes that cyclical 30 SINGAPORE BUSINESS REVIEW | FEBRUARY 2012
“Cyclical improvement has yet to take shape in recent trade and manufacturing numbers.
improvement has yet to take shape in recent trade and manufacturing numbers. But early signals of a moderate recovery persist in a survey based on lead indicators of global trade, which he says echo the cautious optimism of UBS global growth forecasts. “The certainty on US income taxes afforded by the fiscal deal over the New Year is consistent with this view. As such, we still look for cyclical improvement in Singapore growth, but the slower-than-anticipated momentum into the year end leads us to revise our real GDP growth projections to 1.2% in 2012 and 3.0% in 2013.” UBS’ bias is towards the upper end of the government’s 1-3% real GDP growth projection for this year, but Teather notes that even if the research firm forecasted a Q4 2013 high growth of 5.5%, it would remain a subdued recovery by historic Singapore standards. Sluggish H1 OCBC believes that momentum may still be modest in H1 of 2013 even though Q3 2012 momentum had reaccelerated from Q3, which was
the trough of the downcycle in 2012. OCBC nevertheless still looks for around 2% growth in 2013, even with a sluggish H1. “We expect a tepid H1 growth of around 1.2% yoy to gradually pick up some speed in H2 2013 to around 2.9% yoy,” says OCBC analyst Selena Ling. Ling notes that domestic asset prices remaining buoyant into the year-end should give the economy cushion from external shocks. Singapore’s private home prices climbed 1.8% qoq to a record 211.90 points in Q4, adding to the +0.6% qoq in Q3 2012, and bringing fullyear gains to +2.8%. Non-landed private home prices rose 0.8% qoq in Q4, while suburban prices surged 3.4%. The OCBC analyst however notes that business sentiments are showing some tentative signs of caution. Although overall bank loans added 0.5% mom in November, business loans moderated 0.4% mom even though manufacturing and building/ construction loans continued to be resilient. Consumer loans rose 1.7% mom, boosted by housing loans. Ling believes that domestic challenges still remain, namely on the inflation front amid a weak external demand environment. Further, domestic companies, she says, still face a tepid external demand environment, while domestic cost pressures remain. She notes that the upcoming budget, likely in February 2013, may offer some relief to SMEs, but the foreign manpower curbs and the productivity push are likely to remain, especially with global tail risks subsiding. MAS policy Slower-than-expected growth should, all else equal, increase the potential for looser MAS currency policy, but UBS’ Teather notes that authorities continue to highlight the inflationary capacity constraints implied by structural labour market policies. As such, UBS does not look for a change in currency appreciation policy on the part of the MAS in April, but it will be looking at the government’s budget expected in late February for guidance on how tight the authorities perceive capacity constraints to be.
Published on Feb 13, 2013