News analysis

Need of the hour - help firms to contain costs

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.


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

ANZ ECONOMIST NG WEIWEN, noting that this could come in the form of wage support for employers, especially those in the hard-hit oil and gas and wholesale retail trade sectors.

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.

A version of this article appeared in the print edition of The Straits Times on October 15, 2016, with the headline 'Need of the hour - help firms to contain costs'. Subscribe