Singapore economy shrinks first time since 2003

This article belongs to the Singapore stagflation watch story arc.

guardian.co.uk :

Singapore's trade-driven economy shrank for the first time since 2003 in the fourth quarter as weak manufacturing dragged on growth and momentum is expected to weaken further in 2008. The city-state's economy, which relies heavily on exports, contracted at an annualised, seasonally adjusted rate of 3.2% in the fourth quarter, below a revised 4.4% expansion in the third-quarter and the weakest performance since the second quarter 2003.

"It's very clear that we are no more a fairy-tale economy. Inflation is back, growth is slowing down and the labour market is very tight. These are going to be testing times," said Chua Hak Bin, economist at Citigroup in Singapore. Economies across Asia, many of which are heavily reliant on exports, are bracing for a slowdown in 2008 as a housing downturn takes its toll on the giant U.S. economy.

- From the source, the Ministry of Trade and Industry, "Advance GDP Estimates for Fourth Quarter 2007" :

app.mti.gov.sg :

On a quarter-on-quarter seasonally adjusted annualised basis, real GDP fell by 3.2 per cent, compared with 4.4 per cent gain a quarter earlier, reflecting a slowdown in the manufacturing sector.

Singapore GDP unexpectedly shrinks on weaker output

This article belongs to the Singapore stagflation watch story arc.

bloomberg.com :

Singapore's economy unexpectedly contracted last quarter [2007Q4] as factory output slowed, suggesting Asia's export-dependent markets may face increased risks from slower global growth. Gross domestic product shrank an annualized 3.2% after adjusting for inflation, the first decline in 15 quarters, and followed a revised 4.4% expansion in the third quarter, the trade ministry said in a statement today. Economists were expecting a 3.1% gain.

"We definitely should expect to see more softness in exports in the next couple of quarters, and that's bad news for electronics-heavy Asian economies," said Kit Wei Zheng, an economist at Citigroup Inc. in Singapore. "That means slower growth for Singapore and the rest of Asia." "There's no imminent turnaround in electronics and we're unlikely to see a recovery in the next six months," said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. "Pharmaceuticals, a key support for manufacturing, has been losing steam." Singapore's electronic exports have dropped each month since February, mired in the worst slump in five years.

Economists said demand for financial services probably eased as the rout in global credit markets increased risk aversion and the city-state's government implemented measures to cool the property market. Global stock markets have lost $1.6 trillion in value since October and the collapse of the subprime-mortgage market in the U.S. triggered more than $80 billion in writedowns among the world's largest banks. "Singapore's financial services industry has been affected by the shadow of the subprime problem," Seah said. "Investors are more cautious and that has slowed down activity."

- This is huge. The "economists" were off the mark by a whopping 6.3% : 3.1 - (-3.2) = a 6.3% swing. Talk about missing your target by a mile.

So what do we have here? We have slowing economic growth and inflation. At the same time. Stagnant/slowing economic growth + increasing inflation = stagflation.

If this goes on, the ruling party's theory of "better jobs to fight inflation" goes right out the window. Going forward, where would "better jobs" come from in a period of stagnant or slowing economic growth? Do not forget that job creation is a *lagging* indicator, *not* a leading indicator. Except for the very high end, wage increases generally have not quite kept up with rising inflation. The middle class is so very screwed.

NTUC chief urges Singaporeans to be prepared to live with higher fuel, food prices

This article belongs to the Singapore inflation watch story arc.

channelnewsasia.com :

Coping with higher food prices is a global phenomenon, and NTUC Chief Lim Swee Say has called on Singaporeans to be prepared for this new reality. The best way to meet this challenge is for Singapore to focus on economic development, and according to Mr Lim, this is the most sustainable strategy. "Because the day we lose our economic competitiveness, then the problem is no longer about inflation. The problem is much worse than that because there will be no jobs. There will be a softening of the labour market and there will be lower pay," said the NTUC Secretary-General.

That is why Singapore's strategy is simple - job creation to ensure that the labour market remains tight. This will then ensure that workers can enjoy higher salaries and better bonuses. "There's no running away from higher energy costs, higher food prices because this is a global phenomenon. But what we can do in Singapore is to make sure our workers are able cope with this better that any other workers in any other countries. This means, give them good jobs, good skills, a good living environment and good working environment."

- As I have remarked to some friends, this inflation thing looks like it is becoming a political issue. It has become serious enough to be addressed by the Prime Minister in the 2008 New Year message :

... Mr Lee expects the Singapore economy to grow by 4.5 percent to 6.5 percent in 2008. He however noted that inflation has picked up in recent months and this has caused concern to Singaporeans. PM Lee said: "There are several reasons for this. First, the GST rate went up to 7 percent in July ... second, IRAS has revised up the Annual Values of HDB flats ... third, prices of food and energy have increased worldwide. This affects us directly, because we are a small and open economy, which imports all our food and fuel. But we are doing what we can to lessen the burden on Singaporeans, for example, by encouraging NTUC FairPrice and other supermarkets to find new sources of supply and offer house brands of basic essential items, and helping low-income families through U-Save and other rebates."

Michael Palmer, MP - Pasir Ris-Punggol GRC, said: "From the ground we are already hearing people talking about the cost of living going up, food especially, basic necessities like rice, milk, bread. These people feel the pinch everyday. PM mentions, in his message, about the shoppers at Orchard Road. That may not be totally representative about the way people are feeling. It may be year-end bonus but when you look at the year forward and the rising cost of living, they have to deal with their monthly salaries and less that their money can buy."

- Please excuse me while I fall out of my chair after reading the second paragraph above from Michael Palmer. It isn't quite very characteristic for members of the ruling party to contradict umm, other members. It looks like people are really starting to complain about the ongoing rising inflation to their MP's who represent them.

And then there's the SDP who's starting to yell about it in their usual fashion :

At its New Year gathering yesterday, the SDP told friends and supporters that it was gearing up for a campaign in 2008 against the PAP's politics of greed and exploitation. Noting how the price for everyday commodities have risen beyond the means of working Singaporeans, party secretary-general Dr Chee served notice that the Singapore Democrats would not take the matter lying down.

Such an exploitative posture taken by the ruling party must be resisted, he said, and the people must not adopt the mindset that they are powerless to do anything about it ... Dr Chee also said that there was little to celebrate in the coming New Year as the future of many Singaporeans looked uncertain and economically more burdensome. A few attendees voiced their concerns about the continuing state of economic affairs in Singapore and suggested ways of countering the Government's policies ...

- In addition to that, a source tells me that the Worker's Party will be tabling some questions on this issue during the budget debate. So let me add a line to what I was saying earlier :

1. Inflation is taking off and going exponential.
2. Inflation is becoming a political issue.