Singapore avoids recession as Q4 2012 sees 1.8% growth

Downward revision of growth rates in previous quarters was a key factor

By Aaron Low, The Straits Times, 3 Jan 2013

SINGAPORE has dodged a recession after the economy managed to grow in the final three months of the year.

Fourth-quarter growth came in at 1.8 per cent compared with the three months before, surprising many economists who were expecting a contraction.

This easily trumped the 6.3 per cent contraction in the third quarter, flash data based on October and November from the Trade and Industry Ministry showed.

But the better showing is not directly the result of a stronger economy.

OCBC economist Selena Ling said Singapore managed to avoid a technical recession - defined as two consecutive quarters of declines - largely because the growth numbers were revised down in previous quarters.

As a result, the fourth quarter numbers looked better by comparison, she said.

"The Government also expects slightly better-than-expected manufacturing performance in December, which may have pushed up the estimates," she said.

Singapore is not out of the woods just yet, said economists.

They point to the major uncertainties in the United States over spending cuts and near-recession conditions in Europe. The US and Europe are two of the biggest markets for Singapore's exports.

HSBC economist Leif Eskesen said that while there has been a recovery, "overall, there has not been too much to cheer about".

"The economy remains very much at the whim of the global economy, which is still struggling, notwithstanding indications that the US may step back from its self-imposed fiscal cliff," he said.

In a year-on-year comparison, the fourth quarter grew 1.1 per cent, rounding out the year's growth at 1.2 per cent - below the Government's previous forecast of "about 1.5 per cent".

The big winner this year was the construction sector. It grew 8.8 per cent compared with last year, driven by a strong pipeline of public infrastructure projects from highways to train lines.

Services also managed to grow in 2012 but by a feeble 1.2 per cent, hit by bouts of volatility and uncertainty in global markets.

But it was manufacturing which bore the brunt of the weak global economy, contracting 0.2 per cent overall, dragged down by a poor electronics showing.

The economy is expected to grow at a sluggish pace of between 1 per cent and 3 per cent this year, a rate that many analysts say could be the norm for years to come. Citigroup economist Kit Wei Zheng said that even if manufacturing rebounds in the first few months of this year, "until external uncertainties subside, sustainability of any rebound would remain questionable".

A key issue Singapore faces this year is whether it can raise its productivity.

"Our year-on-year rate of growth in employment level has exceeded the rate of GDP growth in the past four quarters," Acting Minister Tan Chuan-Jin said.

The weak productivity growth in turn could affect inflation.

Said United Overseas Bank economist Francis Tan: "Domestic risks to growth this year will come in the form of higher production costs coming from the tight labour market, an appreciating Singapore dollar, climbing industrial property prices and rising oil prices."

Inflation is forecast to be between 3.5 per cent and 4.5 per cent this year.

Output data flags risk of recession
Factory activity contracts, pulled down by electronics
By Melissa Tan, The Straits Times, 4 Jan 2013

THE risk of Singapore slipping into a technical recession remains very much present going by the muted factory output figures released yesterday.

Activity contracted in December, dragged down by the electronics sector, which makes up around a third of manufacturing.

The electronics industry's purchasing managers' index (PMI) - a gauge of anticipated factory orders - fell sharply from 47.4 in November to 46.6 last month. That, in turn, pulled down the overall manufacturing PMI from 48.8 in November to 48.6 in December.

A reading above 50 signals expansion while one below 50 indicates contraction.

Flash estimates on gross domestic product (GDP) growth in the fourth quarter from the Government this week pointed to the country dodging a recession, but the PMI numbers mean it is still a possibility, say economists.

OCBC economist Selena Ling said the December PMI data is usually an indicator of how the manufacturing sector will fare in January and February, so the outlook for the first quarter of this year now looks "tepid". She added that she "would not discount the possibility" that the GDP figures for the fourth quarter of last year will be revised lower.

If that happens, Singapore could end up with either minimal growth from the third quarter to the fourth, or even a technical recession, which is two quarterly GDP declines in a row, Ms Ling said.

The lacklustre December PMI reading here stands in stark contrast to those in Asian manufacturing powerhouses.

South Korea's PMI was at 48.2 in November but rallied to 50.1 in December, while Taiwan's factory activity shot up from 47.4 in November to 50.6 last month. China's official factory PMI held steady at 50.6 from November to December.

But the unofficial China PMI compiled by HSBC, which gathers more data from smaller privately held firms rather than big state-owned enterprises, rose to 51.5 last month, its highest since May 2011.

All eyes here will now be on the official growth figures for the fourth quarter, due out next month.

Flash estimates released by the Ministry of Trade and Industry on Wednesday indicated that Singapore narrowly avoided a technical recession in the final three months of 2012. Fourth-quarter growth last year was 1.8 per cent compared with the three months before, surprising many economists, who were expecting a contraction.

Economists pointed out that the expansion occurred largely because the growth numbers were revised down in previous quarters, which made the fourth-quarter numbers look better by comparison.

Credit Suisse economist Michael Wan said the manufacturing sector, which makes up nearly a quarter of Singapore's economy, has already had its own technical recession, with manufacturing GDP shrinking for three straight quarters.

"We expect the weakness in the manufacturing sector to persist, although there might be some support from the marine and offshore industry and biomedical production," he said.

Barclays Capital economist Joey Chew added that Singapore's factory activity could see a "gradual turnaround" in the first half of this year against an improving global backdrop.

"For Singapore's tech industry to come back to life, we will probably need investment globally to also pick up, which it has not," she said.

But that pick-up could happen if corporate capital expenditure in the United States recovers, which could occur in the second quarter of this year, she added.