It won't be easy for the Singapore economy to grow 3 to 5 per cent this year as forecast by the government, says Ben McLannahan of the Financial Times' Lex commentary team.
He points out the economy shrank sharply in the fourth quarter compared with the third. He tells Bloomberg's Scarlet Fu:
In year-on-year terms it's a 2.1% fall, which globally isn't that bad and relative to Singapore's history — I mean it fell 2.4% in 2001 — which is a much milder, a shorter, contraction. So year on year it's not bad.
But if you break it down and look sequentially from quarter to quarter, it's a slightly grimmer picture. From the fourth quarter of 2008 to the first quarter last year there was a 13 % contraction which was as bad as it got for anyone worldwide. And then from the first to the second Singapore grew by about a fifth and from the second to the third by about 15%, as you say. And so to go from that kind of growth to a 7% contraction should be worrying for anyone connected to Singapore.
Other economies are recovering, points out Scarlet Fu. McLannahan responds:
Singapore has the highest dependence after Hong Kong of any Asian economy on exports, It's about 63% of its GDP… is accountable to exports.
So that's much higher than policymakers would like. And they are trying to rebalance like anyone else with that kind of dependency.
They are encouraging domestic consumption, even encouraging the development of casinos, which for a city-state as uptight Singapore is quite something.
But still Prime Minister Lee in his unusually subdued New Year address last week seemed to acknowledge that the projected growth next year of 3 to 5% won't be easy to manage. And, based on today's numbers, it certainly won't be.
What is the government trying to do about it, asks Scarlet Fu. McLannahan replies:
They are trying to pull all the usual levers. They have got a very loose monetary policy, very loose fiscal policy inherited from the US. They are trying to rev up consumption. But this is a worrying contraction on exports, which for Asia's most export-dependent economy is very worrying.
From the Lex column
Here is what the Financial Times' Lex column said about Singapore (taken from Gulf News):
Goldilocks gets a lot of press at this time of year, as analysts chew over economic outlooks. For 2010 — with many unsure what to call it, let alone how to call it — some have given into the temptingly sweet scenario of moderate growth ("not too hot, not too cold").
If Monday's fourth-quarter gross domestic product numbers from Singapore are any guide, the next phase of its recovery will be unappealing porridge: lukewarm and lumpy.
The city-state has a dependency on exports about twice the Asian average, as a percentage of gross domestic product. Last year, the first two stages of its rebound — the post-crisis bounce, followed by the positive effects of the huge easing of fiscal and monetary policy — were characteristically intense.
After an annualised quarter-on-quarter contraction of 13 per cent in the first three months last year, gross domestic product (GDP) shot up by 22 per cent in the second quarter and 15 per cent in the third.
In that context, a smooth extension of that trajectory out of the longest recession since independence in 1965 was always unlikely. Even so, Singapore's lurch to a 7 per cent contraction in the final three months is worrying.
The optimistic view is that this reflects a simple inventory correction in volatile export sectors such as pharmaceuticals and transport engineering. That may be so: Singaporean manufacturing shrank by 38 per cent in the fourth quarter, having expanded by 30 in the third.
But as Prime Minister Lee Hsien Loong underlined last week in an unusually subdued New Year message, counting on export markets roaring back is unwise, as developed countries withdraw stimulus measures and try to whittle back fiscal deficits.
The sunlit uplands of stage three — a self-sustaining recovery — still look like something out of a fairy tale.
Related posts:
- Singapore GDP up but growth likely to slow down, says MAS
- Singapore growth driven by biomedicals, construction, business services
- Singapore GDP down 6.8% quarter on quarter, manufacturing down 38.4%: Worst performance since 1st quarter
- Singapore rapid recovery ending, wages, hirings down, slow growth next year: MAS
- Straits Times’ GDP goof-up
