Saturday, October 11, 2008

S'pore In 'Recession'

Source : The Straits Times, Oct 11, 2008

SINGAPORE is in a technical recession after the economy slipped into negative territory for the second quarter in a row, dragged down by a slump in exports and a weak property market.


But the real recession, which usually portends job losses, will probably come next year when the Republic feels the full impact of the global economic slowdown, warned economists.

Many have lowered their growth forecasts and are now tipping 0 to 3 per cent growth next year.

The economy shrank in the third quarter, declining by a worse-than-expected 0.5 per cent from a year ago, according to estimates released yesterday by the Ministry of Trade and Industry (MTI). Compared with the previous quarter, the economy declined 6.3 per cent, on top of a 5.7 per cent contraction in the second quarter, the ministry said.

Aside from growth in the first quarter, the economy contracted quarter-on-quarter in three of the last four quarters. This is the first technical recession since 2002, after the bust. Lowering the official forecast for full-year growth for the third time this year, the ministry now expects the economy to grow at 'around 3 per cent' this year, down from 4 to 5 per cent. The original prediction was 4.5 to 6.5 per cent growth.

UOB Kay Hian's head of dealing (regional institutional sales) Dick Chan at the close of trading yesterday, as the STI fell 7.34% to close at 1948. Financial market trouble worldwide has led to lower export demand and caused Singapore's key manufacturing sector to shrink. -- ST PHOTO: SAMUEL HE

'External economic conditions have deteriorated more than expected and some sectors of the economy have weakened significantly,' it said.

With the deepening global financial crisis, demand for exports has dropped, hitting Singapore's key manufacturing sector, which shrank by 11.5 per cent in the third quarter amid a protracted slump in pharmaceuticals and electronic output.

Construction and services held nastier surprises. Construction, which had been powering along at double-digit growth, abruptly halved to lodge single-digit expansion for the first time since 2006.

MTI said that despite 'a strong pipeline of construction projects', a shortage of contractors, engineers and project managers had caused building delays.

Economists also pointed to the lacklustre property market, where a standstill in home sales has prompted developers to delay launching and building projects. With no relief in sight, construction growth is likely to stay at this slower pace.

But a boost could come from the Government bringing back $2 billion worth of building projects it had put off earlier this year to ease the construction squeeze, suggested OCBC economist Selena Ling.

The services sector held no bright spots either, cooling to lower growth as financial market activities slowed while the subdued property market weighed down on the real estate services industry.

'This suggests that the global slowdown has had a much greater knock-on effect on services than we had anticipated and marks the start of a more protracted decline in services growth,' said DBS economist Irvin Seah.

The key worry in this, he said, is that services employs the bulk of the labour force and lower growth may lead to job losses.

But Ms Ling noted that the unemployment rate remains at very low levels, so retrenchments may not hurt so much. She said: 'If job losses come mainly from manufacturing, most of the people hit will be foreign workers.'

To address growth concerns, the Monetary Authority of Singapore has eased monetary policy, setting a zero appreciation stance for the Singapore dollar.

But economists said more immediate measures may be needed in the form of fiscal stimuli, focusing on lower-income groups and retrenched workers.

What's a technical recession?

A TECHNICAL recession is defined as two consecutive quarters in which the economy has shrunk compared to the previous quarter.

The size of the economy is measured in terms of the total value of goods and services produced in a country, also known as its gross domestic product, or GDP.

Generally, the duration of a recession is the full period of the business cycle that economic activity is in decline.

There is no universally accepted way to measure a 'real' recession. Some suggest a full-year economic contraction or two consecutive quarters of the economy shrinking compared to the same period in the previous year.

Singapore's last 'full-scale' recession was in 2001, when the economy shrank 2.4 per cent during the year after the bursting of the bubble.


'At this point, the impact on companies is not significant yet...Big and small companies are going to face the same situation going forward: It's a liquidity problem that's not resolved yet. It started with sub-prime. Now we have gone into corporate loans.

'Companies should get prudent on cost control and manage cash carefully. They have to be very careful before making major investments. On the Government side, we have to think of how (to ensure that) liquidity does not dry up. Viable businesses may not be able to get bank loans.

'The job situation remains OK. Let's say the integrated resorts take off. Singaporeans must be prepared (to switch jobs). There's also a chance the IRs won't take off, because people lost their wealth. We may go into an unemployment situation. I want to be realistic. We should not be surprised if it comes. We must be prepared to manage it.'

Mr Inderjit Singh, MP and chairman of the Government Parliamentary Committee for Finance and Trade and Industry

'We are concerned that in a slowdown, there could be retrenchment. More needy residents will come to the Community Development Council (CDC) for social and job assistance. We don't know how severe the repercussions will be. We don't know the impact on the industries.

'If people lose their jobs, families will be under stress, especially lower-income families. They have very little savings.

'At the CDC level, we are working out various schemes to see how we can help needy families. We have started a food aid fund. We ask people to pledge $100 per month to purchase food rations for needy residents. We started with donated canned food. Now we give dry rations and frozen food vouchers. We may look into providing hot meals.

'We are also doing more in terms of job matching, to help people find jobs as quickly as possible.

'Singaporeans should look into cost- cutting: do away with all those wants, be more prudent in terms of their spending. Go for skills upgrading to increase your earning capacity and your employability.'

MP and North West district mayor Teo Ho Pin

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