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Singapore to recover rapidly

Dec 8, 2009

A RECENT report from the world's leading international bank, HSBC, show Singapore's economic recovery is broadening and set to continue at a rapid pace, with the economy growing by a healthy 6.5 percent in 2010.

The report called 'Primal Knowledge: Still on fire?' was prepared by HSBC's Emerging Markets Research team.

After the Republic's deepest ever recession has come the strongest economic recovery.

In the second and third quarters of the year, GDP rose by nearly 9 per cent in total and has now made up all but 1.8 per cent of the previous fall in output.

The breakdown of third quarter GDP showed manufacturing growing 8.3 per cent from the previous year, with construction up 12.4 per cent and services 2.4 per cent.

Factors working in Singapore's favour include significant domestic policy support and the prospect of a strong regional and world recovery - all of which bodes well for a strong economic recovery in the future.

According to the HSBC report, there are two reasons to be optimistic about Singapore's export prospects.

First the fundamental drivers of an export recovery are now largely in place.

Asian domestic demand is picking up smartly as a result of improved consumer spending and investment.

Domestic demand is expected to continue to improve as the full effects of the hugely powerful and synchronised policy easing in the region filter through.

This will raise the demand for imports/exports which in turn will boost incomes, encouraging further growth in private consumer spending and investment.

In other words, a virtuous circle of economic expansion is getting underway.

Second, HSBC's own lead indicator - which proved accurate in gauging the scale of the export recession - has entered positive territory, pointing to a strong export recovery in the second half of 2009.

The HSBC report concludes that inflation has bottomed out, but it is unlikely the central bank will shift to a policy of currency appreciation until April 2010.

As there seems no need for a second stimulus package, the fiscal deficit is expected to peak in 2009 before the budget returns to its more accustomed position of being in surplus.

Electronics to the rescue

ADDING to HSBC's optimism about the Singapore economy is the encouraging signs shown by the global tech cycle.

Recent months have seen strong increases in US and Japanese semiconductor book to bill ratios, as well as a big bounce in German domestic orders for electrical products.

Electronics output in Singapore surged by 40 per cent between March and September 2009, although it is still below its February 2008 peak.

Property market on the mend

ACCORDING to the HSBC report, property prices have bottomed out as property market transactions have picked up strongly in the last few months.

Indeed the third quarter saw a near 16 per cent rise in private residential prices from the previous quarter - the biggest quarterly rise since the early 1980s.

The Singapore Government has already taken modest steps to cool activity.

The report sees these measures as a pre-emptive attempt to prevent asset bubbles from developing, and if successful, could dampen economic volatility in the property sector.

For more information see HSBC's Emerging Markets website.