Business Times: Sat, Aug 11
THE Singapore economy shrank in Q2 from the previous quarter as weaker global demand hit the outward-facing electronics and wholesale trade sectors. With growth from once-bright tourism-related services, such as hotels, restaurants and the integrated resorts (IRs), starting to wane, the Ministry of Trade and Industry (MTI) now predicts tepid growth for the rest of 2012.
Pharmaceuticals' surge in June helped cushion but could not ward off a seasonally adjusted, annualised 0.7 per cent dip in GDP in the last quarter. While this was better than the flash estimate of a 1.1 per cent contraction and year-on-year growth of 2 per cent was also slightly above the flash estimate of 1.9 per cent, the prospect of a technical recession still lingers.
At a briefing yesterday, MTI permanent secretary Ow Foong Pheng said: "Barring unforeseen circumstances externally, we don't think that would be likely to take place. But it's hard to tell." Still, the possibility of the economy shrinking for a second straight quarter in Q3 is provided for in the narrowed official forecast of 1.5-2.5 per cent full-year growth, MTI economics division director
Thia Jang Ping said yesterday. Some private-sector economists had expected the manufacturing boost in June to yield slight Q2 growth and quash talk of a technical recession. But that had not fully factored in some stagnation on the services end.
Manufacturing shrank 0.5 per cent in Q2, much better than the flash estimate of a 6 per cent quarter-on-quarter decline. But services overturned its growth estimate of 0.4 per cent to contract 0.6 per cent quarter-on-quarter.
Wholesale and retail trade sank 0.4 per cent in both sequential and year-on-year terms because of reduced trade flows. It was also the only major sector to register a decline from a year ago.
The largest quarterly declines came from accommodation and food services, which shrank 5.8 per cent, and "other services", which contracted 7.5 per cent. The latter includes the arts, recreation and entertainment segment, which includes the two IRs .
"Visitor arrivals, which provided strong growth support in the past few years, are also showing some signs of moderating growth," said Mrs Ow.
Tourism has been a bright spot in the economy until as recently as Q1, boosted by healthy visitor arrivals, especially from the region. Accommodation and food services grew a sequential 18.3 per cent in Q1, while other services industries grew 7.8 per cent.
But the effect of heightened global economic uncertainties on consumer sentiment cannot be discounted, said Mr Thia, noting that growth in China visitor arrivals slowed in Q2.
On top of this, the IRs' growth may have stabilised with the fading of novelty that boosted 2010 and 2011's numbers, and 2012 may see a "mini consolidation", Mr Thia noted.
The government projected in 2006 that the IRs would each add $2.7 billion (or 0.8 per cent) to annual GDP by 2015.
Even as weaker consumer confidence crimps growth in visitor arrivals, Singapore remains on track to hit this year's target of $23 to $24 billion in tourism receipts and 13.5 to 14.5 million visitor arrivals, MrsOw said. New attractions, such as Gardens by the Bay and Marine Life Park, may help.
MTI yesterday identified "pockets of strength" in the transport engineering sector with its strong order books and in construction, as infrastructure and industrial building activities continue.
But overall growth of the economy is expected to stay subdued, MTI warned, citing near-term economic indicators like the purchasing manager's index, which points to a manufacturing contraction in July, while the composite leading index for Q2 fell after two quarters of expansion.
US growth, too, is likely to be sub-par given "anaemic domestic demand". Its labour market has been weaker than expected, dampening consumption, while business investment will be held back by the uncertain fiscal outlook before the presidential election, Mrs Ow noted.
On top of a recession, the eurozone remains mired in uncertainty. "Notably, there are still uncertainties surrounding the process of fiscal consolidation in Greece and whether it will continue to receive the financial support it requires. It is also still unclear whether Spain will require a full-scale external funding support," Mrs Ow said.
Despite resilient domestic demand in Asia, growth will be hampered by deteriorating exports stemming from sluggish global demand.
Such considerations underpinned MTI's decision to lower the top-end of its earlier 1-3 per cent forecast. But Mr Thia reiterated the central bank's view that if Europe's crisis worsened or China had a hard landing, growth could fall below the forecast.
These concerns will weigh on sentiment- sensitive segments within the finance and insurance sector, MTI said.
The sector's modest sequential Q2 growth was attributed to sluggish stock-market trading, while business services fell sequentially as uncertainty weighed down business and management consultancy activities.
At yesterday's briefing, Monetary Authority of Singapore (MAS) deputy managing director Ong Chong Tee affirmed the current monetary policy, saying it remained appropriate. But economists now see a higher chance of policy easing to spur growth at MAS' October review.
"We think that the central bank's focus is likely to be shifting slightly more towards growth from inflation," said Credit Suisse economist Robert Prior-Wandesforde.
Inflation, which came in at 5.1 per cent for the first half, is expected to moderate in the second half of the year on the back of base effects and slowing growth.
Citi economist Kit Wei Zheng believes that the risk of a technical recession has risen, and holds as his central view some fine-tuning of policy by reducing the slope along which the Singapore dollar nominal effective exchange rate climbs.
But views appear to be converging. While Barclays Capital's Leong Wai Ho expects no technical recession and believes that Q2's weak turn-out is "not a policy game-changer", he acknowledged increased risks of fine-tuning to the current appreciation stance.
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