Sunday, 16 October 2016

Poor GDP figures point to long slowdown for Singapore

0.6% growth year on year for Q3 2016, the weakest since 2009, according to advance estimates
By Chia Yan Min, Economics Correspondent, The Straits Times, 15 Oct 2016

Surprisingly poor gross domestic product (GDP) figures yesterday have raised the spectre of a prolonged period of economic pain for Singapore.

Growth was just 0.6 per cent in the July to September period compared with the same quarter a year ago, according to advance estimates from the Ministry of Trade and Industry.

This was sharply lower than economists' estimates of a 1.7 per cent expansion, and the weakest rate of growth since 2009 in the wake of the global financial crisis.

The economy shrank 4.1 per cent in the third quarter compared with the preceding three months - the biggest quarter-on-quarter slump since 2012.

The fact that Singapore is in for a protracted slowdown was borne out by the sombre tone of the Monetary Authority of Singapore's (MAS) latest policy statement, also released yesterday.

The central bank said economic growth this year will be slower than previously expected, and is "not expected to pick up significantly in 2017".

Still, the MAS stood pat on its zero appreciation policy for the Singapore dollar despite the lacklustre outlook. Economists say it is keeping its powder dry for worse times ahead.

"We read it as saving policy ammunition... to be deployed if necessary, possibly at the next policy meeting in April 2017," said OCBC economist Selina Ling.

She revised her full-year growth forecast for 2016 to 1.3 per cent, down from 1.9 per cent, joining several other private sector economists who slashed their forecasts for the year in response to the poor data.

The advance estimates - which took into account data from the first two months of the quarter - showed weakness in two key pillars of the economy, manufacturing and services.

While manufacturers have been under siege for some time on the back of flagging global trade, economists are also becoming concerned about the service sector. "The drag from (weak external demand) has now permeated into the core of the Singapore economy," said Ms Ling.

The service sector has now logged three consecutive quarters of quarter-on-quarter contraction. The last time this happened was during the global financial crisis, said ANZ economist Ng Weiwen.

"(This reinforces) our view that tough times are here to stay for Singapore, with growth running the risk of remaining stuck in low gear," he added.

A prolonged service sector slowdown will lead to more layoffs going into next year, given that the sector employs 72 per cent of the workforce, noted UOB economist Francis Tan. "We should be prepared for worse to come," he added.

The only sector that logged an uptick in output in the third quarter was construction, which grew 2.5 per cent over last year.

Government forecasters expect growth to come in at the lower end of 1 per cent to 2 per cent this year.

MAS keeps monetary policy unchanged
Move widely expected; analysts say central bank saving option of easing for tougher times ahead
By Chia Yan Min, Economics Correspondent, The Straits Times, 15 Oct 2016

The central bank opted to keep its Singapore dollar policy unchanged in its latest statement yesterday, even though the economy seems to be in for a protracted period of slow growth.

The move was widely expected, with economists predicting that the Monetary Authority of Singapore (MAS) would save the option of nudging the currency lower for tougher times ahead.

The central bank uses the exchange rate as its main monetary policy tool to strike a balance between inflation from overseas and economic growth.

The exchange rate is allowed to float within a policy band that the MAS can adjust when it reviews monetary policy. A stronger currency counters inflation by making imports cheaper in Singdollar terms, while a weaker Singdollar - which corresponds to easing monetary policy - helps to lift growth by making exports cheaper abroad.

In its latest policy statement yesterday, the MAS said it is maintaining the rate of appreciation of the Singdollar policy band at zero per cent against a basket of key currencies. The central bank adopted this stance in April, when it unexpectedly eased policy. It was the third time MAS had eased monetary policy since January last year.

"(Such a policy stance) will be needed for an extended period to ensure medium-term price stability," the central bank said yesterday.

It noted that economic growth has weakened and is not expected to pick up significantly next year.

Data out yesterday showed the economy grew at just 0.6 per cent in the third quarter, its slowest rate of growth since 2009 in the wake of the global financial crisis.

Meanwhile, core inflation - which strips out accommodation and private road transport costs to better gauge everyday expenses - is expected to rise modestly from around 1 per cent this year to average 1 per cent to 2 per cent next year.

Citi economist Kit Wei Zheng said the central bank's tone has become more bearish since its last statement in April. However, the latest policy decision suggests that while growth is lacklustre, an outright recession is not expected.

If the economy does take a turn for the worse, however, monetary policy might not necessarily be the best tool to boost growth, Mr Kit said. "Sector-specific and fiscal policy measures could be arguably more effective in supporting the economy and jobs," he noted.

Credit Suisse economist Michael Wan said the MAS will eventually have to ease its exchange rate policy, and expects it to do so at its next meeting in April: "(We) see today's move as delaying the inevitable."

Need of the hour - help firms to contain costs
By Yasmine Yahya, Assistant Business Editor, The Straits Times, 15 Oct 2016

The Singapore economy will likely avoid an outright recession, the Government said on Monday. But if the latest set of data is anything to go by, the economy is barrelling right up to the edge of one.

Early yesterday, the Ministry of Trade and Industry released advance estimates showing the local economy grew a disappointing 0.6 per cent in July to last month compared with the same quarter a year earlier. This was far weaker than economists' estimates of 1.7 per cent growth.

Compared with the previous quarter, from April to June, the economy shrank 4.1 per cent. This is the biggest slump since 2012.

Then, also yesterday, the Department of Statistics said retail sales slid 1 per cent in August from a year ago. Excluding vehicles, retail sales sank 6.5 per cent.

The glum figures join a sombre parade of recent data, including the highest number of layoffs seen in the first half of a year since 2009 and flat export growth. The overall picture is decidedly grim.

ANZ economist Ng Weiwen said the latest data "reinforces our view that tough times are here to stay for Singapore, with growth running the risk of remaining stuck in low gear".

So, what now?

The Monetary Authority of Singapore has stayed its hand, saying yesterday that it was maintaining its policy of zero appreciation for the Singapore dollar. This is not unexpected, even in the light of the dire numbers that came out yesterday.

First, it is understandable that the MAS would want to save its firepower for even tougher times ahead. Economists expect the central bank to shift its policy stance in April, with the likely move a weakening of Singdollar, making exports cheaper, for instance.

Second, it makes sense for the MAS to let current uncertainties settle before making its move. The outcome of the United States election next month, for one thing, is a big question mark for the global economy.

Third, monetary policy is now no longer as effective as it once was. Eight years on from the 2008 financial crisis, global markets are swimming in loose monetary policy - near-zero interest rates, quantitative easing, negative deposit rates, and so on - and yet growth is still stalling in much of the developed world.

Finally, much of the drag on the local economy is a result of weak overseas demand. Some of Singapore's biggest trading partners, such as the European Union, China, Japan and Indonesia, are buying fewer goods and services from us.

What would make sense is for the Government to introduce more fiscal support, perhaps in the form of industry-specific off-Budget measures.

"External demand is beyond our control," said Mr Ng. "The best way for the Government to help our struggling companies now is on the cost front."

This could come in the form of wage support for employers, especially those in the oil and gas and wholesale retail trade sectors, which have been particularly hard-hit in the current slowdown.

Of course, some measures unveiled in the Budget, such as industry transformation road maps that include job creation, are still being progressively rolled out.

These measures, while laudable, will take time to bear fruit.

As Mizuho Bank's head of economics and strategy, Mr Vishnu Varathan, noted in a report yesterday: "The 'bluntness' of (already stretched) monetary policy justifies far more expansionary fiscal stance with sharper relief for corporates."

He said cost containment, such as reduced levies and training or wage support, would likely remain an enduring Budget theme.

But given the slower-for-longer outlook and the fact that many companies are already struggling to stay afloat in these rough waters, it would not come as a big surprise if the Government acts before the next Budget.

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