Singapore Economy slips into technical recession
By Fiona Chan
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 dot.com 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.
‘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.
Source : Business Times - 11 Oct 2008
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