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8/2/2019 Recent Economic Developments in Singapore 01 Sep 2011
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pan
2010 2011
Q3 Q4FullYear
Q1 Q2
Real Sector
Real GDP Growth, y-o-y % 10.5 12.0 14.5 9.3 0.9
Real GDP Growth, q-o-q saar % -16.7 3.9 - 27.2 -6.5
Index of Industrial Production, y-o-y %
13.7 25.7 29.7 16.5 -5.8
Non-oil Domestic Exports, y-o-y %
23.7 17.6 22.8 12.3 1.9
Labour Market and Prices
Unemployment Rate, sa, % (Average) 2.1 2.2 2.2 1.9 2.1
CPI Inflation, y-o-y % 3.4 4.0 2.8 5.2 4.7
Wage Growth, y-o-y % 5.4 7.5 5.6 8.5 6.0
Highlights:
The Singapore economy saw a sequential decline in Q2 2011Domestic economic activity fell by 6.5% q-o-q saar (seasonally-adjusted annualisedrate) in the second quarter of this year. The contraction was led by a slowdown intrade-related activities, due to supply-chain disruptions from the Japan earthquakeand weaker demand from the advanced economies.
Global growth is expected to be subdued in the months ahead In H1 2011, economic growth slowed in the G3, and moderated in Asia ex-Japan.Activity in the US and Eurozone is likely to remain weak in the near term, weigheddown by fiscal consolidation and sovereign debt concerns.
Singapore’s GDP growth is forecast to come in between 5-6% in 2011 Economic activity in Singapore is likely to grow modestly in the second half of theyear. Growth will be supported by services which are driven largely by Asian demand.
However, downside risks in the external environment have heightened in recentweeks, including weaker growth prospects in the US and Europe.
Headline CPI inflation will remain elevated over the next few monthsCPI inflation is expected to come in at slightly over 5% in the next few months,boosted by accommodation and private road transport costs, before slowly trendingdown towards the end of the year. Excluding these items, MAS Core Inflation will belower, although it will still be firm due to the continued pass through of earliercommodity price hikes and wage increases.
01 Sep 2011Recent Economic Developments in Singapore
____________________________
Note: Labour market statistics were obtained from the Ministry of Manpower, while trade and index of industrial production (IIP) datawere provided by IE Singapore and the EDB respectively. All other data in this document were obtained from the Building andConstruction Authority, Department of Statistics, Ministry of Trade and Industry, unless otherwise stated.
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A. Macroeconomic Overview
G3 growth falters in H1 2011
Economic growth in the G3 was weak in the first half of 2011, reflecting the impact
of transitory shocks such as higher oil prices and the Japanese earthquake.
Moreover, recent GDP data revisions in the US showed that economic conditions
were not as robust as previously thought – indeed, aggregate activity had stalled
since H2 2010. In the Eurozone, growth slowed dramatically in Q2 after a strong
outturn in the preceding quarter. Japan’s economic performance, however, came
in slightly better than expected in Q2, as industrial production rebounded after the
earthquake in March.
In the US, real GDP growth was revised sharply down to 0.4% in Q1 from 1.9%,
due to lower inventory investment and higher imports than previously estimated.
Growth picked up to 1.0% q-o-q saar in Q2, with gross fixed capital formation
providing significant support. In particular, business investments in machinery,
equipment and structures, grew by 9.9% q-o-q saar compared with 2.1% the
quarter before. Residential investment also saw a modest pick-up, although the
housing market still remains generally weak. In contrast, household consumption
growth virtually came to a standstill as American consumers cut back on their
purchases in the face of falling real incomes.
Growth in the Eurozone fell to
0.7% q-o-q saar in Q2 from 3.4% in
Q1. The lacklustre performance was
rooted in the weakness of the core
economies of France and Germany,
which posted growth of 0% and 0.5%
respectively. Both countries were
weighed down by a decline in private
consumption. Additionally, growth in
Germany was also affected by the
slowdown in the global trade cycle.
Activity in the G3 declined in H1 2011.
Source: Datastream
The Japanese economy shrank for the third consecutive quarter by
1.3% q-o-q saar, although the contraction was less severe than previously
expected. Net exports were adversely affected by the widespread supply chain
disruptions, shaving 3.1% points off overall growth. Private consumption held up
relatively better, with a smaller decline of 0.3% in Q2, compared to -2.5% in Q1.
In contrast, government investment increased by 12.5% q-o-q saar as post-quakereconstruction spending commenced.
2005 2006 2007 2008 2009 2010 2011
-15
-10
-5
0
5
10
Q O Q S A A R % G
r o w t h
Japan
Eurozone
Real GDP Growth
US
Q2
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Despite soft economic conditions, inflation in the US and Eurozone rose further in
Q2 2011 as a result of higher energy and food prices. Headline CPI inflation in the
US increased to 3.4%, the highest since Q3 2008. Likewise, in the Eurozone,
inflation remained above the ECB’s target. In Japan, core consumer prices fell by a
smaller 0.93% in Q2, following a 1.4% decline in the previous quarter, asdeflationary pressures started to dissipate alongside the recovery from the
earthquake.
Regional economies: A deceleration in growth seen in Q2
Advance Q2 GDP releases for the Northeast Asian countries indicated a
moderation in economic activity. The ASEAN-4 economies however, turned in a
mixed performance, with Indonesia continuing to grow strongly in contrast with
slower expansions in the export-oriented economies.
Reflecting the significantly weaker external environment, growth in the
trade-dependent economies of Hong Kong, Korea, Malaysia, Taiwan and Thailand
moderated in Q2 2011. On a trade-weighted basis, the average growth of these
economies slowed to 4.2% from 5.4% in Q1, partly due to production cuts in Japan,
which affected their IT industries as a result.
In China, economic activity eased gradually in the first six months of this year, as
successive rounds of policy tightening took effect. Growth edged down to
9.5% y-o-y in Q2 2011, after easing to 9.7% in the previous quarter, amidst
continued efforts to rein in credit expansion. While industrial output continued to
grow at double-digit rates, growth moderated slightly in Q2 from the previous
quarter as firms ran down inventories. Nonetheless, retail sales accelerated slightly
in Q2 alongside robust wage increases, while fixed asset investment remained
buoyant. Similarly, GDP growth in India moderated to 7.7% in Q2 2011, following
the cumulative interest rate hikes of 250 basis points since early last year.
Meanwhile, price pressures have continued to intensify across Asia ex-Japan 1,
driven largely by higher food and commodity prices and tight labour markets.
Headline CPI inflation in the region rose to 5.7% in Q2 2011, from 5.4% in Q1.
Nonetheless, there are signs that the upward momentum has slowed and headline
rates are starting to stabilise in some countries, particularly Indonesia and Taiwan.
1 Asia here comprises China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.
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Singapore economy: Activity slowed sharply in Q2
The Singapore economy contracted by 6.5%
q-o-q saar in Q2 2011.Following a 27.2% q-o-q saar
expansion in Q1 2011, economic
activity in Singapore took a sharp
step-down in Q2, contracting
6.5% q-o-q saar. Excluding the
pharmaceutical segment, economic
activity fell by 5.0%2. For H1 2011 as
a whole, domestic GDP growth
averaged 4.9% in y-o-y terms,
compared to 11.2% in H2 2010.
The decline was led by a slowdown in trade-related activities3 which were affected
by supply chain disruptions arising from the Japan earthquake as well as softer
global demand. Within the services cluster, the financial and business sectors
recorded mild declines. In comparison, tourism-related industries, such as hotels &
restaurants and retail, continued to register steady gains, supported by resilient
regional demand.
i) Manufacturing Sector
Manufacturing activity fell by
23.7% q-o-q saar in Q2 2011, following
a 97.2% surge in the preceding
quarter. The decline was broad-based,
with contractions in both the
electronics and non-electronics
clusters. Electronics output shrank by
43.4% q-o-q saar in Q2, as the
semiconductor and infocomms &
consumer electronics segments fell
sharply.
Activity in both the electronics and non-
electronics clusters faltered.
Activity in the non-electronics segment was dampened as well, with chemicals,
pharmaceuticals and general manufacturing recording double-digit sequential
declines. In contrast, the precision engineering cluster received a boost from the
marked expansion in machinery and equipment investments in Singapore in Q2.
2 EPG, MAS Estimates3 Trade-related activities here comprise manufacturing, wholesale and transport & storage sectors.
2005 2006 2007 2008 2009 2010 2011
-20
-10
0
10
20
30
40
50
0
-20
P e r C e n t
SAAR
YOY Growth
Real GDP
Q2
2005 2006 2007 2008 2009 2010 2011
50
75
100
125
150
175
200
I n d e x ( Q 1 2 0 0 5 = 1 0 0 ) , S A
Q2
IIP Electronics
IIP Non-electronics
Total IIP
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ii) Construction Sector
The construction sector expanded by
13.4% q-o-q saar in Q2. Gains were
supported by the public non-residential
segment, notably from industrialdevelopments such as JTC
Corporation's Liquefied Natural Gas
(LNG) Terminal and ongoing projects
at the Seletar Aerospace Park.
Meanwhile, growth in public and
private residential construction
moderated slightly.
Construction activity saw sequential growth in
Q2 2011.
Source: EPG, MAS Estimates
iii) Services SectorFollowing the 10.1% increase in the preceding quarter, activity in the services
sector plateaued (-0.2%) in Q2 2011. Alongside the sharp decline in the domestic
manufacturing industry, some of the supporting trade-related services also faltered.
In particular, the weak showing in the wholesale segment reflected in part the
decline in electronics re-exports to Europe. Meanwhile, the
tourism-related services sector continued to expand in Q2 2011 amidst continued
resilience in the region. The regional market4 accounted for more than 70% of
visitor arrivals into Singapore. As a result, average room rates trended upwards
and hotel occupancy rates rose from 86% in Q1 to 87% in Q2.
The financial services sector saw a mild contraction of 0.2% q-o-q saar in Q2 2011.
Heightened uncertainty surrounding the Eurozone and US debt-related problems
weighed on the sentiment-driven industries. For instance, stock market average
daily turnover volumes dropped sharply by 24% q-o-q, extending the 7.7% decline
in the quarter before. In contrast, lending activities remained resilient. Domestic
non-bank lending expanded for the ninth sequential quarter, bolstered by an
increase in business loans. Consumer lending also stayed firm, supported by a
pipeline of mortgage-related loans. In the offshore segment, gains in lending to theregion helped offset the fall in loans extended to Europe.
4 The regional market here comprises ASEAN, China, Hong Kong, India, Japan, Korea and Taiwan.
2005 2006 2007 2008 2009 2010 201150
100
150
200
250
300
350
100 I n d e x ( Q 1 2 0 0 5 = 1 0 0 ) ,
S A
Residential CertifiedPayments
Non-residentialCertified Payments
Civil EngineeringCertified Payments
Q2
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B. Labour Market
Modest employment gains in Q2 2011
Preliminary estimates showed that overall employment gains moderated to 22,800in Q2 2011, from 28,300 in the preceding quarter. In particular, hiring in services
eased by almost a third to 18,800 as most segments added fewer workers in Q2.
In comparison, the manufacturing and construction sectors saw a slight pick-up in
hiring. Manufacturing expanded employment by 1,300, led by the non-electronics
industries while construction added 2,600 jobs due to the ramp-up in public sector
projects.
Reflecting the slower expansion in employment, the seasonally-adjusted overall
unemployment rate edged up from 1.9% in March 2011 to 2.1% in June. Similarly,the resident unemployment rate rose from 2.7% to 3.0% over the same period.
As a result, overall resident wage growth eased from 8.5% y-o-y in Q1 2011 to
6.0% in Q2.
According to the latest Business
Expectations Survey, the employment
outlook has softened somewhat in
industries such as transport & storage,
financial services, business servicesand manufacturing. However,
wholesale & retail trade,
accommodation & food services and
recreation, community & personnel
services have reported stronger hiring
expectations. Notwithstanding the
divergence in employment prospects
across the various sectors, overall
employment is still expected to grow ata firm pace over the next few months.
The pace of hiring slowed in Q2 2011.
2005 2006 2007 2008 2009 2010 2011
-20
0
20
40
60
80
0
-20
C h a n g e s i n E m p l o y m e n t ( ' 0 0 0 )
1.6
2.0
2.4
2.8
3.2
3.6
P e
r C e n t , S A
Goods Industry (LHS)
Services Industry (LHS)
Unemployment Rate (RHS)
Q2
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C. Inflation
CPI inflation eased in Q2 2011, but is expected to remain above 5% for the
coming months
Headline CPI inflation eased from 5.2% y-o-y in Q1 2011 to 4.7% in Q2 2011,
reflecting the effects of a high base a year ago when car prices surged. In contrast,
MAS Core Inflation, which excludes the costs of accommodation and private road
transport, rose from 1.9% in Q1 to 2.2% in Q2 on account of the tight domestic
labour market, firm consumer spending and elevated global commodity prices.
In July, CPI inflation rose to 5.4%,
mainly due to the increase in
accommodation costs, as old tenancycontracts are reset at the current higher
rental rates, as well as a sharp rise in
COE premiums. MAS Core Inflation
remained stable at 2.2% as the upward
adjustment in electricity tariffs in Q3 was
offset by the moderation in services
inflation.
CPI inflation rose to 5.4% in July.
CPI Inflation is expected to remain elevated at slightly over 5% in the next fewmonths, on account of continued strong increases in accommodation costs, before
slowly trending down towards the end of the year. The high COE premiums imply
that car prices will also remain a significant contributor to CPI inflation for the rest of
the year. In comparison, MAS Core Inflation will be lower, although it will remain
firm due to the continued pass through of earlier commodity price hikes and wage
increases. For the whole of 2011, CPI inflation is expected to average between 4%
and 5%, of which almost two-thirds will be accounted for by accommodation and
private road transport costs. Excluding these two items, the MAS Core Inflation is
projected to be 2-3%.
2007 2008 2009 2010 2011-2
-1
0
1
2
3
4
5
6
7
8
0
Y O Y % G
r o w t h
MAS CoreInflation
Overall CPIInflation
Jul
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D. Balance of Payments
The surplus in the overall balance of payments moderated in Q2 2011
The overall balance of payments surplus moderated to $5.5 billion in Q2 2011, from$6.2 billion in the preceding quarter. This reflected a narrowing of the current
account surplus, even as the net outflow in the capital and financial account
declined.
Gross capital inflows increased from
$39 billion in Q1 to $46 billion in Q2.
These inflows have been volatile, but at
an average of $31 billion (40% of GDP)
per quarter since Q1 2010, they wereslightly below the average of $37 billion
(59% of GDP) per quarter in the
previous period of sharp inflows from Q1
2006 to Q1 2008. The inflows in the
latest quarter were driven by direct and
‘other’ investments, while portfolio
investment continued to be negative,
indicating that foreigners’ sales of local
securities exceeded their purchases.
The overall balance of payments surplus
moderated to $5.5 billion in Q2.
‘Other investment’ gross inflows comprise both bank and non-bank private sector
flows. The former accounted for the bulk of the increase in Q2, largely reflecting
DBU borrowings from the ACU.
The increase in gross capital inflows in Q2 was
driven by direct and other investments.While gross inflows to Singapore are
large, there have also been sizable
gross outflows from the financial
system, given our role as aninternational financial centre as well as
the large presence of companies here
with international operations. In fact,
Singapore is typically in a net capital
outflow position.
2005 2006 2007 2008 2009 2010 2011
-30
-20
-10
0
10
20
30
0
-30
S $ B i l l i o n
Capital & Financial Account
Current Account
Overall Balance
Q2
2005 2006 2007 2008 2009 2010 2011
-20
0
20
40
60
0
-20
S $ B i l l i o n
Direct Investment Portfolio Investment Other Investment
Q2
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Gross capital outflows rose to $53 billion in Q2 from $50 billion in the preceding
quarter, and exceeded gross inflows by $6.5 billion. There was a significant gross
outflow of ‘other investment’ from the domestic banking sector, mainly arising from
increased loans to non-bank non-residents.
Overall, net outflow in the financial account narrowed to $6.5 billion in Q2 from $11
billion in Q1, driven by a decline in net outflow of ‘other investment’. In comparison,
net portfolio investment outflows rose slightly, while net inflow of direct investment
to Singapore fell, reflecting a larger reduction in gross foreign investment here than
in outward investment by residents.
The current account surplus narrowed
to $14 billion in Q2 2011 from $17
billion in the previous quarter. Therewas a fall in the goods surplus as
imports rose more than exports amidst
a softening of external demand
conditions. The services surplus also
declined, reflecting a fall in
transportation and other business
services net receipts and an increase
in net payments for travel services.
Meanwhile, the income balancerecorded a lower deficit, as the
increase in income receipts exceeded
that of payments.
On a net basis, the financial account recorded
an outflow of $6.5 billion.
2005 2006 2007 2008 2009 2010 2011
-30
-20
-10
0
10
20
0
-30
S $ B i l l i o n
Direct Investment
Portfolio Investment
Other Investment
Financial Account
Q2
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E. Outlook
G3 economies: A slowdown in growth momentum is expected
Within the G3 economies, growth in the US and the Eurozone is likely to be
subdued in the near term, weighed down by fiscal consolidation and sovereign debt
concerns. In Japan, growth should rebound in H2 2011 due to the ongoing
restoration of supply chains, and post-quake reconstruction efforts.
Expectations of US growth in the coming quarters have been scaled down
significantly. The ISM manufacturing PMI fell to 50.9 in July, with the
non-manufacturing index coming in slightly stronger at 52.7. These readings are
consistent with below-potential output growth over the next few quarters. At the
same time, consumers have become less optimistic – the latest reading from the
University of Michigan Consumer Sentiment Index fell to 55.7 in August from 63.7
in July. The downturn reflected the impact from events such as the protracted fiscal
debt ceiling debate and S&P’s downgrade of US long-term debt. While the labour
market has started to show modest signs of improvement, this is unlikely to
translate to a strong recovery in the short term. Latest consensus forecasts
suggest that the US economy will grow by only 1.8% in 2011 and 2.4% in 2012,
lower than the 2.5% and 3.0% expected a month ago respectively.
Across the Atlantic, growth momentum in the Eurozone is expected to remain weak
after the sharp slowdown in Q2 2011. Concerns over sovereign debt issues have
intensified over the past few months, with the threat of contagion spreading from
Greece, Ireland and Portugal to the more systemically important economies of Italy
and Spain. At a landmark EU Summit in July 2011, European leaders agreed on a
second bailout for Greece worth €109 billion, which included a debt exchange deal
that reduced the net present value of Greece’s debt by an estimated 21%.
However, uncertainty remains over Greece’s fiscal sustainability, and whether the
Eurozone’s bailout fund, the European Financial Stability Facility (EFSF), will be
sufficient should contagion spread to Italy and Spain. Combined with ongoing fiscal
austerity, overall growth in the Eurozone is expected to come in at 1.9% in 2011,
according to consensus forecasts.
In Japan, signs have emerged that the economy is recovering from three quarters
of negative growth. Following sharp declines in March, several economic indicators
have shown increases in April–May. Industrial output recovered in April and
increased thereafter while real exports also rebounded in May. Private
consumption began to pick up in April, along with an improvement in the services
sector.
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Reconstruction efforts will boost growth in H2 while manufacturing production is
likely to reach pre-quake levels in the next few months, as indicated by the latest
PMI reading which climbed to 52.1 in July from 50.7 in June. Nevertheless, a
number of headwinds persist: power shortages may not have ended as more
nuclear plants are shut down for maintenance, while the slowing global economycould hold back the pace of Japan’s export recovery.
Table 1: Consensus Forecasts of GDP Growth
2010Forecast
2011 2012
PercentIndustrialUS 3.0 1.8 2.4Japan 4.0 -0.7 3.1
Eurozone 1.7 1.9 1.5UK 1.4 1.3 2.0NIEHong Kong 7.0 5.7 5.0Korea 6.2 4.2 4.4Taiwan 10.9 4.9 4.8
ASEANIndonesia 6.1 6.4 6.4Malaysia 7.2 5.0 5.4Thailand 7.8 4.1 4.8Philippines 7.6 4.9 5.2
China 10.3 9.2 8.8India * 8.9 7.7 8.1
Source: CEIC and Consensus Economics, Aug 2011* Fiscal year starting 1 April for 2011 and 2012 forecasts.
Regional economies: Growth will be dampened by a softening in externaldemand
The regional economies are likely to be constrained by weaker external demand in
the second half of 2011 while increased uncertainty over the short-term prospects
for the global economy will weigh on sentiment more generally. The impact of
previous policy tightening measures in some countries will also restrain domesticdemand growth.
After expanding by 9.6% in the first half of this year, China’s growth is poised to
moderate in the immediate quarters ahead. Reflecting some slackening in the
industrial sector, China’s manufacturing PMI dipped to 50.7 in July 2011, its lowest
level since February 2009. Consumer spending and private investment, which
have posted healthy growth thus far, could ease in H2 2011 on tighter domestic
credit conditions. Nonetheless, GDP growth is still expected to exceed 9% this
year, after an expansion of 10.3% in 2010.
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The slowdown in the developed countries and China would affect the NIE and
ASEAN economies adversely, especially the more export-oriented ones such as
Korea, Malaysia and Taiwan. Indeed, some signs of a slowdown have already
emerged, with electronics exports easing significantly in recent months.
The subdued external growth outlook would also impact consumer and businessconfidence negatively, which would in turn dampen household and investment
spending. In the near term, however, the regional economies should see some
pickup in activity, buoyed by reconstruction demand from Japan.
On the inflation front, the recent stabilisation in global food prices, and
strengthening of regional currencies have helped to cap increases in headline
inflation. In China, inflation is likely to have peaked in Q2, as weather-related food
supply shocks appear to have faded. In India and Korea, however, core CPI
remained elevated as a result of rising wage costs and high commodity prices.With growth softening in some regional economies, underlying cost pressures
should be fairly contained.
In the US and Eurozone, capacity utilisation rates have remained below
pre-crisis levels. Inflationary pressures may subside given the uncertain growth
outlook and the easing of global oil and commodity prices. In Japan, while
aggregate demand has been recovering gradually, it has yet to reach pre-quake
levels. Thus, price pressures will remain muted.
IT outlook: Global demand will remain lacklustre amidst headwinds fromindustrialised economies
The global IT outlook has weakened in recent months, alongside growing concerns
about the macroeconomic environment. Following strong gains in Q1, global chip
sales contracted for three consecutive months in the second quarter on
broad-based declines across the Americas, Europe and Asia. The moderation in
activity was corroborated further upstream in the capital equipment segment as
well. Based on SEMI statistics, the US chip equipment industry’s book-to-bill ratiohas fallen continuously over the past four months, down from 0.98 in April to 0.86 in
July, reflecting manufacturers’ eroding confidence in global IT demand prospects.
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Broad-based declines in global chip sales were
seen in Q2.
Source: Semiconductor Industry Association and EPG, MAS
estimates
Global semiconductor inventories have risen to
near pre-recession levels.
Source: IHS iSuppli
Semiconductor inventories rose steadily to near pre-recession levels in Q2, as
major industry players built up their stockpiles in the aftermath of the Japanearthquake on supply-side disruption fears. In the latter half of Q2, with global
demand slowing alongside weaker-than-expected US economic data and fresh
Eurozone sovereign debt concerns, businesses were unable to clear inventories,
which subsequently remained at high levels. Production in Q3 will likely be
dampened as firms work through their excess inventories amidst a retraction in final
demand. Reflecting the weakening industry dynamics, average selling prices for
memory chips in the DRAM market have declined significantly, falling by 20% in
July, compared to April.
Final demand for IT products in the advanced economies have already registered
sequential declines. Demand from emerging markets also softened as well, with
retail and corporate sales in China recording modest gains in Q2. Notwithstanding
product launches from the smartphone and tablet segments in the coming months,
recent indicators point to restrained global spending, which could cap gains in the
IT sector. Overall, activity in the global IT sector is expected to remain subdued in
the next two quarters.
2009 Q2 Q3 Q4 2010 Q2 Q3 Q4 2011 Q2
-15
-10
-5
0
5
10
15
20
Q O Q S A % G r
o w t h
2009 Q3 2010 Q3 201160
65
70
75
80
85
D a y s o f I n v e n t
o r y
Q2
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Domestic Outlook: Economy expected to expand by 5 to 6% in 2011
Mirroring the heightened uncertainty in the external environment, activity in the
Singapore economy slowed considerably in Q2, following the surge in Q1.
Activity in the global IT industry also faltered, leading to a weak showing in thedomestic manufacturing and trade-related sectors.
Going into the third quarter of 2011, the recent spate of negative events, including
the historic downgrade of US sovereign credit and European debt woes, has
caused fresh jitters in global financial markets. Weak growth prospects in the
developed economies, concerns about fiscal sustainability in the Eurozone
and inflationary pressures in the region continue to cloud the near-term outlook.
Singapore’s economic performance in the second half of the year will be capped by
these external developments. In particular, the trade-related sectors, whichaccount for almost half of Singapore’s GDP, will be most vulnerable to further
weakness. However, resilient Asian demand should partially offset these
headwinds from the industrialised countries in the next two quarters.
At this stage, Singapore’s GDP growth is forecast to come in at 5-6% for the year
as a whole, with a modest increase in economic activity in H2, compared to the first
half of the year. Growth will be supported by services which are driven largely by
Asian demand, such as in the tourism industry, even as activity in the
manufacturing and trade-related sectors remains sluggish. While global marketvolatility will weigh on the sentiment-sensitive industries, the financial sector should
see firm growth for the rest of 2011, anchored by domestic lending activities.
If incoming external indicators take a significant turn for the worse, overall activity in
the Singapore economy will slow further.
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F. Macroeconomic Policies
A further tightening in policy stance to ensure price stability over the medium
term
i) Monetary Policy
Following the rapid and broad-based
economic expansion in Q1 2011, there
was a pullback in domestic economic
activity in Q2. While the immediate
outlook has been clouded by
uncertainty stemming from the series
of negative shocks to the globaleconomy, resilient regional demand
and steady recovery in the advanced
economies will continue to drive
Singapore’s growth and sustain its
economic activity at a high level.
Meanwhile, inflationary pressures
remain strong given the high rates of
resource utilisation in the economy.
Specifically, the tight labour marketcould result in stronger wage growth
and a greater degree of pass-through
to services costs, and eventually
higher CPI inflation.
In April 2011, MAS re-centred the policy band
upwards. The policy band was re-centred below
the prevailing level of the S$NEER, with no
change to its slope or width.
Given these upside risks to inflation, MAS re-centred the S$NEER policy band
upwards in April 2011. The policy band was re-centred below the prevailing level of
the S$NEER, with no change to its slope or width. MAS’ latest move took into
account the impact of the pre-emptive tightening moves in April and October 2010,which would continue to have a restraining effect on economic activity and prices
over the rest of this year.
ii) Fiscal Policy
The Singapore economy registered record GDP growth of 14.5% in 2010. As such,
the key measures of the “Resilience Package”, put in place in 2009 to help
businesses and households tide over the economic downturn, have been fully
phased out as of January this year. The overall budget deficit for FY2010 came inat $0.3 billion (0.1% of GDP), significantly lower than the $3.0 billion projected in
Oct Jan Apr Jul Oct Jan Apr
98
100
102
104
106
108
I n d e x ( 2 O c t 2
0 0 9 = 1 0 0 )
indicates release of Monetary Policy Statement
Appreciation
Depreciation
2009 2010 2011
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2010, on the back of higher revenues from the better-than-expected performance of
the economy.
Budget 2011, announced on 18 February, builds on the medium-term policy
agenda initiated by Budget 2010, with additional initiatives aimed at restructuringthe Singapore economy in order to enhance productivity over the medium to long
term. These measures represent continued steps towards implementing the
recommendations charted out by the Economic Strategies Committee (ESC) to
support the economy's growth in the next phase of its development. They can be
broadly divided into three categories: first, the government has committed $2.1
billion this year in the form of tax benefits, grants and training subsidies to help
companies and workers to innovate and deepen their skills and expertise. Second,
measures to enable companies to develop growth capabilities, commercialise their
R&D and expand abroad were enhanced. Third, the government introducedinitiatives to improve the softer aspects of the quality of life in Singapore and make
growth more inclusive. These measures have been especially geared towards
lower-skilled workers, the elderly as well as the lower-to-middle income households.
At the same time, Budget 2011 also contained one-off, targeted measures to assist
firms facing rising business costs and to help households preserve purchasing
power amidst higher inflation. These include rebates on income taxes, service and
conservancy charges, and utility bills.
For FY2011, the government is expecting the budget balance as a percentage ofGDP to be close to zero, with a small overall budget surplus amounting to around
$0.1 billion.
Summary of Fiscal Position
FY 2009 FY 2010 Revised FY 2011 Budgeted
$billion % of GDP $billion % of GDP $billion % of GDP
Operating Revenue 39.5 14.2 45.5 14.5 48.1 14.2
Total Expenditure 41.9 15.1 46.4 14.8 47.1 13.9
Operating
Expenditure 30.9 11.1 34.1 10.9 35.9 10.6
DevelopmentExpenditure
11.0 4.0 12.3 3.9 11.2 3.3
PrimarySurplus/Deficit (-)
-2.3 -0.8 -0.9 -0.3 1.0 0.3
Add: NII/NIRContribution
7.0 2.5 7.8 2.5 7.8 2.3
Less: SpecialTransfers
5.5 2.0 7.2 2.3 8.7 2.6
BudgetSurplus/Deficit (-)
-0.8 -0.3 -0.3 -0.1 0.1 0.0
Note: Figures may not tally due to rounding.Source: Ministry of Finance.
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Selected Indicators
Land Area (Sq km) 712.4 Literacy Rate* (%) 95.9
Total Population ('000) 5,076.7 Real Per Capita GDP (US$) 41,109
Labour Force ('000) 3,135.9 Gross National Savings (% of GNI) 47.8
Res ident Labour Force Participation Rate (%) 66.2
* Refers to resident population aged 15 years and over.
COMPONENTS OF NOMINAL GDP
SECTORAL (% of GDP), 2010
COMPONENTS OF NOMINAL GDP
EXPENDITURE (% of GDP), 2010
Manufacturing 22.2 Private Consumption 37.9
Financial Services 11.9 Public Consumption 10.7
Business Services 14.0 Private Gross Fixed Capital Formation 21.0
Construction 4.5 Public Gross Fixed Capital Formation 4.0
Transport & Storage 8.6 Increase in Stocks -1.2
Information & Communications 3.6 Net Exports of Goods & Services 28.1
Wholesale & Retail Trade 16.5 Statistical Discrepancy -0.5
Hotels & Restaurants 2.2
MAJOR EXPORT DESTINATIONS
(% SHARE), 2010
MAJOR ORIGINS OF IMPORTS
(% SHARE), 2010
Total Exports (S$ Billion) 478.8 Total Imports (S$ Billion) 423.2
Malaysia 11.9 Malaysia 11.7
Hong Kong 11.7 US 11.2
China 10.3 China 10.8
Indonesia 9.4 Japan 7.9
USA 6.4 Indonesia 5.4
ASEAN 30.3 ASEAN 24.0
NIEs 19.4 EU 12.3
EU 9.8 NIEs 12.7
Source: IE Singapore
MAJOR DOMESTIC EXPORTS
BY COMMODITY (% SHARE), 2010
MAJOR IMPORTS
BY COMMODITY (% SHARE), 2010
Domestic Exports (S$ Billion) 248.6 Total Imports (S$ Billion) 423.2
Mineral Fuels 30.2 Electronics 29.1
Electronics 26.1 Mineral Fuels 27.3
Chemicals 17.5 Machinery & Transport Equipment (ex. Electronics) 17.4
Machinery & Transport Equipment (ex. Electronics) 12.0 Manufactured Articles 7.0
Manufactured Articles 7.7 Chemicals 6.8
Manufactured Goods 2.8 Manufactured Goods 6.3
Source: IE Singapore
GENERAL INDICATORS, 2010
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OVERALL ECONOMY 2009 2010 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Jun-11 Jul-11
GDP at current prices (S$ bil) 266.7 303.7 62.1 64.5 68.3 71.8 73.0 76.0 76.4 78.2 81.9 79.2 na na
GDP (US$ bil) 183.3 222.7 41.1 43.8 47.5 51.5 52.0 54.7 56.3 60.0 64.1 63.9 na na
Real GDP Growth (YOY % change) -0.8 14.5 -8.4 -1.3 2.1 4.6 16.4 19.4 10.5 12.0 9.3 0.9 na na
Real GDP Growth (QOQ SAAR % change) na na -8.9 18.6 13.3 -1.5 39.9 29.7 -16.7 3.9 27.2 -6.5 na na
By Sector (YOY % change):
Manufacturing 1/ -4.2 29.7 -23.8 -0.5 7.5 2.4 37.2 45.2 13.7 25.5 16.5 -5.9 10.7 7.4
Electronics / -8.5 35.7 -36.6 -19.4 -1.2 28.0 66.4 52.8 26.1 14.7 12.1 -7.7 -15.3 -18.2
Non-electronics / -2.2 27.2 -18.4 8.3 11.8 -8.0 27.6 42.6 8.3 31.9 18.4 -5.0 23.5 19.6
Financial Services 4.3 12.2 -4.0 3.0 6.3 12.2 18.9 9.9 9.7 10.9 11.4 10.0 na na
Business Services 4.3 5.9 5.7 3.6 3.5 4.4 6.1 7.1 6.0 4.5 4.4 2.2 na na
Construction 17.1 6.1 25.1 18.5 11.4 14.9 9.7 11.4 6.7 -2.0 2.4 1.5 na na
Transport & Storage -9.0 6.0 -12.0 -11.9 -10.1 -1.6 6.6 8.5 5.2 3.8 4.9 4.1 na na
Information & Communications 1.0 2.9 1.6 1.0 0.8 0.7 2.2 2.9 3.4 2.9 3.3 2.4 na na
Wholesale & Retail Trade -6.0 15.1 -12.0 -9.6 -5.2 3.5 16.9 18.9 14.4 10.8 5.0 0.0 na na
Hotels & Restaurants -1.6 8.8 -4.2 -4.2 -0.1 2.1 7.2 12.5 8.2 7.5 7.2 6.4 na na
By Expenditure Component (YOY % change):
Consumption 0.9 5.7 -3.3 -0.9 3.4 4.9 7.7 5.6 3.7 5.8 3.6 6.4 na na
Private 0.2 4.2 -2.8 -2.9 2.3 4.4 6.1 5.2 1.5 4.3 6.1 6.6 na na
Public 3.5 11.0 -4.6 10.2 7.7 6.6 12.0 7.6 11.8 11.3 -2.6 5.4 na na
Gross Fixed Capital Formation -2.9 5.1 -12.3 -5.3 0.2 7.3 11.1 -1.7 5.8 5.7 -7.8 10.0 na na
Private -5.6 3.5 -16.4 -7.8 -1.5 5.2 9.6 -4.6 4.0 5.8 -12.4 9.4 na na
Public 18.5 15.0 21.0 18.8 12.8 21.1 19.4 19.7 17.2 5.2 15.8 13.1 na na
External Demand -8.1 19.2 -18.0 -13.3 -7.7 7.9 21.7 24.4 19.8 12.1 8.4 1.8 na na
TRADE
Total Exports, fob (YOY % change) -18.0 22.4 -27.8 -25.4 -20.0 4.9 28.2 29.1 20.0 14.5 13.4 6.7 6.0 3.2Non-Oil Domestic Exports -10.6 22.8 -25.6 -14.5 -7.8 8.2 23.1 27.6 23.7 17.6 12.3 1.9 1.0 -2.8
Re-Exports -16.6 20.5 -24.1 -23.8 -17.9 1.9 24.5 24.6 20.9 13.0 7.2 2.6 -0.3 -7.4
Total Imports, cif (YOY % change) -21.0 18.8 -27.6 -28.4 -22.8 -2.7 25.5 26.4 15.6 9.7 10.2 8.4 3.7 -3.8
WAGE-PRICE INDICATORS
Unemployment Rate (SA,%) 3.0 2.2 3.2 3.2 3.3 2.3 2.2 2.2 2.1 2.2 1.9 2.1 na na
Average Nominal Wages (S$ per month) 3,872 4,089 4,155 3,609 3,562 4,160 4,310 3,819 3,754 4,474 4,677 4,048 na na
Consumer Price Index Inflation (YOY % change) 0.6 2.8 3.4 0.2 -0.3 -0.8 0.9 3.1 3.4 4.0 5.2 4.7 5.2 5.4
MAS Core Inflation (YOY % change) 0.0 1.5 2.2 0.0 -0.7 -1.4 0.1 1.7 2.2 2.1 1.9 2.2 2.3 2.2
FINANCIAL INDICATORS3/
S$ Exchange Rate Against: (end-period)
US Dollar 1.4034 1.2875 1.5194 1.4498 1.4141 1.4034 1.4028 1.4013 1.3175 1.2875 1.2617 1.2292 1.2292 1.2041
100 Japanese Yen 1.5194 1.5798 1.5450 1.5115 1.5752 1.5194 1.5016 1.5822 1.5760 1.5798 1.5248 1.5284 1.5284 1.5528
Euro 2.0163 1.7120 2.0153 2.0464 2.0674 2.0163 1.8789 1.7113 1.7919 1.7120 1.7828 1.7838 1.7838 1.7272
Interest Rates (end-period, % p.a.)
3-month Fixed Deposit Rate 0.25 0.19 0.32 0.27 0.26 0.25 0.22 0.21 0.20 0.19 0.18 0.18 0.18 0.18
3-month Domestic Interbank Rate 0.69 0.44 0.69 0.69 0.69 0.69 0.69 0.56 0.50 0.44 0.44 0.44 0.44 0.44
Prime Lending Rate 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38
Money Supply (end-period)
Broad Money, M2 (YOY % change) 11.3 8.6 11.5 12.9 11.3 11.3 8.8 7.3 8.2 8.6 8.7 10.7 10.7 11.9
Straits Times Index (end-period) 2,897.6 3,190.0 1,700.0 2,333.1 2,672.6 2,897.6 2,887.5 2,835.5 3,097.6 3,190.0 3,105.9 3,120.4 3,120.4 3,189.3
YOY % change 64.5 10.1 -43.5 -20.8 13.3 64.5 69.9 21.5 15.9 10.1 7.6 10.0 10.0 6.7
GOVERNMENT BUDGET4/
Operating Revenue (S$ mil) 37,872 44,581 8,756 10,000 10,621 8,495 10,430 11,912 12,395 9,845 11,909 13,572 na na
Total Expenditure (S$ mil) 40,483 44,049 13,073 7,874 9,177 10,359 14,509 7,888 10,360 11,293 15,798 8,593 na na
Operating Expenditure 29,871 32,755 10,395 5,269 6,695 7,512 11,433 5,346 7,328 8,648 11,948 6,483 na na
Development Expenditure 10,612 11,295 2,678 2,604 2,482 2,847 3,077 2,542 3,032 2,644 3,850 2,111 na na
Primary Surplus/Deficit (S$ mil) -2,611 532 -4,317 2,126 1,444 -1,864 -4,079 4,024 2,035 -1,447 -3,889 4,979 na na
% of GDP -1.0 0.2 -7.0 3.3 2.1 -2.6 -5.6 5.3 2.7 -1.9 -4.7 6.3 na na
BALANCE OF PAYMENTS
Current Account Balance (% of GDP) 19.0 22.2 18.5 18.4 17.3 21.7 20.8 22.9 25.0 20.1 21.1 18.2 na na
Goods Balance 15.9 20.9 12.2 16.0 16.9 18.2 16.9 22.0 24.1 20.6 20.5 18.4 na naServices Balance 7.7 7.1 6.3 6.6 7.3 10.3 7.8 6.9 7.3 6.5 6.6 5.9 na na
Income Balance -2.4 -3.7 2.5 -2.0 -4.8 -4.7 -1.9 -3.9 -4.2 -4.8 -3.7 -3.8 na na
Current Transfers -2.2 -2.2 -2.4 -2.2 -2.1 -2.1 -2.1 -2.1 -2.2 -2.2 -2.2 -2.3 na na
Capital & Fin Account Balance (% of GDP) -14.6 -3.1 -28.0 -19.1 -7.8 -5.6 6.2 -2.9 -17.4 1.9 -13.7 -8.3 na na
Financial Account Balance (% of GDP) -14.5 -3.0 -27.8 -18.9 -7.6 -5.5 6.3 -2.7 -17.2 2.0 -13.6 -8.2 na na
Direct Investment -1.7 8.5 -5.8 -0.6 -2.2 1.2 2.5 10.7 9.5 10.9 16.3 8.3 na na
Portfolio Investment -8.5 -9.8 -13.7 -8.5 -12.0 -0.6 -13.5 -5.8 -8.9 -11.2 -11.4 -12.2 na na
Other Investment -4.3 -1.6 -8.4 -9.7 6.5 -6.1 17.3 -7.6 -17.8 2.3 -18.5 -4.2 na na
Overall Balance (% of GDP) 6.2 18.9 -5.8 1.6 10.3 16.7 28.8 18.0 8.2 21.1 7.6 6.9 na na
Official Foreign Reserves (US$ mil) 5/ 187,809 225, 754 166, 251 173, 191 182, 039 187,809 197,112 199, 960 214, 662 225,754 234, 205 242, 287 242, 287 249,150
Months of Imports 9.2 8.7 6.8 7.8 9.0 9.2 8.9 8.5 8.6 8.7 8.6 8.5 8.5 8.7
Source:1/ Monthly data from Index of Industrial Production, EDB / Data from Index of Industrial Production, EDB3/ Straits Times In dex from SGX. All other indicators fro m MAS.4/ Ministry of Finance5/ MAS
na: Not available