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Wednesday, April 14, 2010 By Abhijit

Stronger Singapore dollar to fight inflation

The Singapore dollar is edging towards a five-year high with the Monetary Authority of Singapore (MAS) revaluing it today to fight inflation.

Singapore's central bank reversed its "zero per cent appreciation" policy introduced one and a half years ago to keep the currency in check and help exporters during the recession.

The Monetary Authority of Singapore (MAS) announced today it will "re-centre the exchange rate policy band at the prevailing level" — the Singapore dollar is currently trading around S$1.38 against the US dollar — and allow a "modest and gradual appreciation".

Inflation is expected to go up to 2.5 to 3.5 per cent this year on the back of faster than expected economic growth.

The MAS decided to let the Singapore dollar rise as the economy grew more than expected, by 13.1 per cent in the first quarter compared to a year ago. The economy is now expected to grow by 7 to 9 per cent this year, up from 4.5 to 6.5 per cent predicted in February.

The Singapore dollar has already risen to pre-crisis levels. It is trading close to levels last seen between April and July 2008, when it rose to a five-year high, as you can see from the chart (below) going back to April 2005.

Still, the Singapore dollar is more than 20 per cent undervalued against the US dollar, the Financial Times reported yesterday, quoting the Asian Development Bank.

Singapore_dollar_yahoo_fina

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Wednesday, November 11, 2009 By Abhijit

Trillionaires! (In Singapore dollars)

What a year it has been! Singaporeans have emerged richer, not poorer, from the recession. Total household net wealth is now estimated to be a trillion Singapore dollars (about $720 billion), says the Monetary Authority of Singapore, continuing the success story told by the Singapore Department of Statistics, which announced in September:

Singapore household net wealth grew marginally by 0.3 percent from 952 billion Singapore dollars in 2007 to 954 billion Singapore dollars in 2008.

Amazing, isn't it, that while wages dropped, the economy tanked, and corporates haemorrhaged red ink, the people grew richer?

 Singapore_household_assets_
Look at the figures from the MAS Financial Stability Review for November. It's not as if that household assets haven't gone up and down with the economy. They hit a low in the first quarter of this year when the economy shrank by as much as 10 percent compared with the same period last year. But look at them now. Wow!

With 20/20 hindsight, MAS explains:

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Thursday, October 29, 2009 By Abhijit

Singapore rapid recovery ending, wages, hirings down, slow growth next year: MAS

The Singapore economy is set to slow down after two quarters of rapid growth, according to the Monetary Authority of Singapore (MAS).

MAS_macroeconomic_review_qu
The economy won't grow as rapidly as in the second quarter, when Singapore came out of recession, and in the third quarter when, according to advance estimates, the economy grew 0.8 percent over the same period last year — the first such growth in more than a year.

GDP growth in 2010 is expected to be slower than in previous post-recession periods, says MAS.

There is bad news for workers and job seekers.

Wage_cuts_MAS
Singapore pay cuts have been deeper than those in other Asian economies such as Japan, Hong Kong and Thailand, but less than that in Taiwan, says the MAS Macroeconomic Review which you can download here.

Wages declined in the first half of the year by an average of 3 percent year on year and are expected to go up by just 1.6 percent next year compared to the 4.9 percent average increments in 2007 and 2008.

More worryingly, job vacancy rates in all sectors remain well below their levels before the recession.

Overall,there were only 33 job openings per 100 jobseekers, compared to an average of 72 during the 2005-07 period.

And hirings are not likely to pick up much.

Three-quarters of the 635 firms polled intend to maintain headcount.

The outlook is most pessimistic for the manufacturing sector.

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Monday, October 12, 2009 By Abhijit

Singapore GDP up but growth likely to slow down, says MAS

The Singapore economy for the first time posted better quarterly results than last year, growing by 0.8 percent between July and September compared with the same period last year. The government now expects the economy to shrink by 2 to 2.5 percent this year, and not by 4 to 6 percent as previously forecast.

But the Monetary Authority of Singapore is not letting the Singapore dollar rise against other currencies because it does not expect growth to continue at the current rate. "Looking ahead, the economy is not expected to sustain the strong pace of expansion seen in Q2-Q3 2009," it says.

"Singapore’s key export markets, including for IT products, have yet to recover decisively," it adds, and therefore "GDP growth in 2010 is expected to be slower than in previous post-recession periods."

Indeed, Singapore's third quarter growth was lower than in the second quarter.

Third quarter GDP was up 14.9 percent over  the second quarter, according to the Ministry of Trade and Industry's advance estimates. But that was lower than the second quarter growth when Singapore blitzed out of the recession by growing 22 percent over the first quarter.

The tables below show how badly the economy was hit before coming out of the recession in the second quarter. All the figures are from the Ministry of Trade and Industry press release. It says: "Growth was driven by the continued expansion of biomedical and electronics manufacturing output, and improvements in the trade-related and tourism sectors of the economy."

Percentage change over corresponding period last year.

 3Q084Q0820081Q092Q093Q09
Overall GDP0.0-4.21.1-9.5-3.20.8
Goods producing industries      
Manufacturing-11-10.7-4.1-24.2-1.18.3
Construction26.018.520.324.418.612.4
Services producing industries5.5-1.34.7-5.1-4.8-2.4

Quarter on quarter annualized growth, seasonally adjusted

 3Q084Q0820081Q092Q093Q09
Overall GDP-2.1-16.41.1-12.122.014.9
Goods producing industries      
Manufacturing-5.2-21.3-4.1-18.858.534.9
Construction23.510.320.39.632.7-0.6
Services producing industries-1.7-15.04.7-9.78.39.5

The ministry agrees with the Monetary Authority that "economic activity will probably remain below pre-crisis levels".

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Wednesday, September 2, 2009 By Abhijit

Economists revise Singapore forecasts after getting Q2 wrong

Economists polled by the Monetary Authority of Singapore now expect the Singapore economy to shrink by 3.6 percent this year after their second quarter forecasts proved wildly wrong.

The gross domestic product was 3.5 percent lower year on year in the second quarter when the economists expected a 7.7 percent drop. They were then expecting the economy to shrink by 6.5 percent this year.

The Ministry of Trade and Industry explained why the economy picked up in the second quarter. It said:

This improvement was largely driven by the spike in output from the volatile biomedical manufacturing cluster and inventory re-stocking. Financial services were boosted by sentiment-sensitive segments such as stock market activities.

"It is uncertain if these can be sustained into the second half," the ministry said, sticking to its forecast of a 4 to 6 percent drop in GDP this year.

But the economists expect the economy to do better than that — and grow by 4.5 percent next year.

The MAS report compares their latest forecasts with their earlier forecasts in June.

Let's look at the second quarter first – how the economy fared compared with the economists' forecasts. The manufacturing sector did far better than they expected. 

Key indicators
(year on year % change unless otherwise stated)		Median forecast
(June survey)		Actual outcome
GDP-7.7-3.5
Manufacturing-16.2-2.4
Financial services-7.1-4.5
Construction17.418.6
Wholesale and retail-14-13.8
Hotels and restaurants-5-6.2
Private consumption-4.7-3.7
Non-oil domestic exports-15.6-14.3
Consumer price index-0.7-0.5
Unemployment rate (seasonally adjusted)3.73.3

Here are the economists' latest forecasts for this year compared with their earlier forecasts.

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Thursday, July 16, 2009 By Abhijit

New Singapore wheeze to help banks boost liquidity

Singapore's central bank is getting less picky about how banks raise funds after recording a net loss of of 9.2 billion Singapore dollars (US$6.34 billion) in its last financial year that ended in March, badly hurt by the global downturn. The loss equalled about 3.5 per cent of the central bank's average assets, said Monetary Authority of Singapore (MAS) managing director Heng Swee Keat.

MAS made a profit of 7.44 billion Singapore dollars in the previous year and its total assets currently stand at 264.75 billion Singapore dollars, according to the Wall Street Journal. Singapore's 2008 gross domestic product was 257.41 billion Singapore dollars, according to the MAS annual report, available on its website.

MAS is not bullish about the economy at all even after a report showed the gross domestic product increased an annualized 20.4 percent last quarter from the previous three months, the first growth in a year. The sustainability of the recovery is "uncertain", said MAS chairman Goh Chok Tong in the bank's annual report today, reports Bloomberg.

More interesting is this Wall Street Journal report:

Singapore's central bank announced new steps that will give banks more options to increase their liquidity, while saying its monetary policy remains appropriate to support the economy.

The Monetary Authority of Singapore's new measures aim to help banks better manage their risks and liquidity profiles.

Effective immediately, the central bank will accept triple A-rated Singapore dollar- denominated debt securities issued by sovereigns, organizations that aren't tied to any one sovereign country such as the World Bank, and state-backed companies as collateral.

(MAS managing director Heng said these will be accepted in addition to Singapore government securities as collateral in the MAS standing facility. The facility was introduced in June 2006 to allow banks to improve day-to-day liquidity management by providing a channel to place excess funds with, or to borrow from, MAS directly, says the MAS annual report.)

The measures are aimed at giving financial institutions more a flexible pool of collateral and are also a pre-emptive measure to meet any liquidity problems faced by them in the future.

MAS managing director Heng Swee Keat said the central bank will also enter cross-border collateral backing agreements with more central banks to accept high-rated foreign currencies and government debt securities as collateral.

Last month, the MAS said it had signed a memorandum of understanding with the Dutch central bank under which banks from both countries can ask for liquidity assistance.

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Wednesday, April 29, 2009 By Abhijit

Worst may be over, but brace for more job losses: MAS

The Monetary Authority of Singapore says the worst may be over for Singapore's economy which recorded its sharpest drop – a staggering 19.7 percent slump – in the first quarter of this year .

But there's no reason to cheer yet. The central bank foresees more job losses and several false starts before the economy actually picks up. The only certainty is it isn't going to happen this year.

Job losses this year could total more than the 19,800 lost during the 1998 Asian financial crisis, says MAS. 

Don't blame the government, please.

As the central bank rightly says, Singapore is so export-oriented the health of its economy depends on the world at large. So if the economy doesn't get better, you know where the problem lies. Not in Singapore.

"Almost 60% of our exports are destined for economies that are expected to be in outright recession in 2009," says the MAS.

It cites another reason why the economic outlook is so uncertain — the swine flu outbreak. It's too early to tell how far the disease will spread and what the economic effect will be.

Really, now is not the right time to expect rock-solid economic forecasts.

But the central bank had to come out with its half-yearly review and so it ends up saying why the economic outlook is so hard to read at the moment beyond this woeful certainty:

The domestic economy is not expected to stage a decisive rebound this year.

Recovery is likely to be slow and gradual unlike in previous downturns and there could be several "false starts", says the MAS Macroeconomic Review released today.

The good news is the Singapore economy, being "extremely open", will "pick up more strongly than other countries when the global recovery eventually gets underway".

But the situation now is uniformly gloomy. The Review says:

  • The employment outlook has weakened.
  • Job losses will be concentrated in the manufacturing and trade-related sectors. Employment prospects for most manufacturing and trade?related industries have dimmed significantly. Indeed, severe job losses could be expected given the deepening global recession and its impact on regional trade flows.
  • Wage growth will moderate significantly.
  • The electronics and chemicals clusters remain weak.
  • The air cargo segment remains grounded on a weak IT outlook. A supply overhang looms over the container shipping industry.
  • Prospects for the domestic financial sector remain weak in the near term.
  • There is slower lending activity. Domestic non?bank credit declined for the fourth consecutive month in February, as business loans weakened in line with the broader economic slowdown.
  • Increases in building and construction loans have levelled off.
  • The rest of the economy could see further downward adjustments.

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Tuesday, April 14, 2009 By Abhijit

Singapore dollar devalued after worst ever slump

God Only Knows, as the Beach Boys sang.

It's hard to say anything more about where the Singapore economy is headed since the experts keep changing their tune. Even fortunetellers would be embarrassed by wrong calls like the Ministry of Trade and Industry's recent economic forecasts.

Meanwhile, the Monetary Authority of Singapore (MAS) devalued the Singapore dollar today but, thank goodness, only by about 1.7 percent, according to Bloomberg.

That's only an estimate since MAS uses a secret currency exchange rate trading band that goes up and down with trade and the economy, or so it is believed.

But thank goodness anyway because a sharper drop would have hurt consumers since everything has to be imported including chicken and rice.

This is the second time MAS has changed tack in six months. It stopped letting the Singapore dollar rise against other currencies in October last year to help Singapore compete in the world market. But with exports continuing to fall, it has now devalued the Singapore dollar.

MAS sees no reason for any further weakening of the Singapore dollar because the economy has "sound fundamentals and a resilient financial system".

That's nonsense as far as the economy is concerned – it's in free fall.

Gross domestic product plunged unexpectedly sharply – by 19.7 percent –in the first three months of this year compared with the previous quarter, the Ministry of Trade and Industry reported today. That's worse than the 16.4 percent slump between October and December. 

Never before has the Singapore economy contracted so sharply since the government began compiling such data in 1976, says the Wall Street Journal.

The ministry now forecasts the economy will shrink by six to nine percent this year.

This is the third time it has lowered its forecast in four months. On January 2 it lowered its forecast from between two percent growth and one percent drop to between one percent growth and two percent slump this year. Then on January 21 it said the economy would be shrink by two to five percent this year.

Will it be right this time?

God only knows.

The ministry's powers of economic divination seem to have been rattled by the crisis as the economy gets worse and worse.

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Tuesday, April 7, 2009 By Abhijit

Devalue Singapore dollar? It’s going to hurt

Economists feel the Singapore dollar should be devalued, reports Reuters. Not because the currency is overvalued but because the economy is tanking.

That is what the Reuters report says: "The economy has been hit severely, more by collapsing external demand than an overvalued currency."

Currency devaluation usually means economic failure. It is necessary, nevertheless, says Reuters.

The Monetary Authority of Singapore (MAS) will have to "effectively devalue the currency if it wants to meaningfully achieve lower interest rates", says Reuters.

What's good for business could hurt consumers, though. Food and other necessities could  cost more since almost everything has to be imported. And there's no guarantee that lower interest rates will stimulate the economy in the current recession. It hasn't so far in America, Europe or Japan.

And devaluation doesn't really work for long, according to the Economist. Its Economics A-Z explains:

DEVALAUATION
A sudden fall in the value of a currency against other currencies. Strictly, devaluation refers only to sharp falls in a currency within a fixed EXCHANGE RATE system. Also it usually refers to a deliberate act of GOVERNMENT policy, although in recent years reluctant devaluers have blamed financial SPECULATION. Most studies of devaluation suggest that its beneficial effects on COMPETITIVENESS are only temporary; over time they are eroded by higher PRICES.

However, Singapore has no choice, according to Reuters. The Singapore dollar has to fall from its current level of about 1.50 Singapore dollars to 1 US dollar. Reuters says:

Singapore's central bank announces its policy after a six-month hiatus next week, and barely anyone doubts that authorities will have to ease monetary settings to shore up an economy that is already in recession and toying with deflation.

Shifting the Singapore dollar's trade-weighted trading band down in one go, effectively a devaluation, would be the least ambiguous way of easing policy, said Emmanuel Ng, a strategist at OCBC Bank in Singapore.

That seems to be the consensus view, simply because other options could have some undesirable side-effects. The Monetary Authority of Singapore (MAS) could for instance allow the Singapore dollar to trade in a wider band, or gradually steer the centre of the band lower at a pre-determined pace so as to let the currency depreciate over time.

The former throws policy open to the whims of a market that could drive the currency up or down rather quickly, while the latter could push up market yields…

Singapore can fix its currency or its interest rates, not both at the same time.

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Friday, December 12, 2008 By Abhijit

Singapore falls behind: Asian Development Bank

Singapore is expected to be Asia’s worst performing economy next year not only according to a Reuters poll of economists, but also according to the Asian Development Bank. It forecasts Singapore will grow only 1.2 percent next year. Hong Kong, South Korea, Malaysia, all major Southeast and East Asian economies excluding Japan are expected to do better. This chart is taken from the Asia Economic Monitor’s December issue.

ADB_2009

Singapore is expected to trail far behind the region as a whole. The Asian Development says in another report: “Economic growth in emerging East Asia — defined as the 10 Association of South East Asia Nations (ASEAN) plus the People’s Republic of China (PRC); Hong Kong, China; Taipei,China; and the Republic of Korea — will slow to 5.7 percent in 2009 down from 6.9 percent in 2008.”

China is expected to grow 8.2 percent and Indonesia and Vietnam are both expected to record 5 percent growth. Malaysia is likely to see a 3.5 percent increase in GDP. Hong Kong is expected to grow 2.1 percent, South Korea 3 percent and Taiwan 1.7 percent. Even volatile Thailand is likely to do better than Singapore and post 2 percent growth. Only Japan is expected to shrink 0.2 percent.

A World Bank report on East Asia stresses the need to shift exports from recession-hit rich nations to “faster growing regions in the world and substitute external with domestic demand”. It highlights the financial stimulus packages unveiled by China, South Korea, Malaysia but says: “Other countries with less fiscal space have refrained thus far from launching ambitious fiscal stimulus programmes.”

The World Bank notes: “Foreign exchange reserves in almost all countries but China fell in October, with declines particularly large in Korea, Malaysia and Singapore.”

 Singapore’s official reserves fell from $168.8 billion in September to $162.1 billion in October, according to the Monetary Authority of Singapore.

The World Bank also notes a credit squeeze in Singapore and elsewhere in the region. It says:

The shortage of liquidity and breakdown in confidence is inhibiting the capacity of banks to finance international trade transactions, as banks are reducing or stopping lending for trade, while the risk premium for letters of credit is rising. In Korea, for example, net trade credits fell by almost a fourth from a year earlier to $8.9 billion during January-September according to balance of payments data, and in Singapore anecdotal evidence suggests that the number of letters of credit extended fell by a third over the same period.

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