Singapore economy in recession, GDP contracts 6.3% in Q3 2008, MAS ends currency gain policy

This article belongs to the Singapore recession watch story arc.

bloomberg.com :

Singapore fell into the first recession since 2002 as manufacturing slumped, prompting the central bank to end a policy favoring gains in its currency in an effort to support the economy. Singapore's GDP, or Gross Domestic Product, contracted an annualized 6.3% in Q3 2008 from the previous 3 months, after shrinking a revised 5.7% in Q2 2008. MAS said today [10 Oct 2008] it's shifting to a "zero-percent appreciation" stance. A weaker Singapore dollar would help electronics exporters such as Venture and Chartered Semiconductor by making their products cheaper overseas. Central banks around the world are loosening monetary policy and cutting interest rates as a worsening global credit crisis saps growth, with the Federal Reserve and European Central Bank lowering rates in an emergency global coordination that was followed in Asia by China, Taiwan and South Korea, while Australia cut its key rate by one percentage point on Oct 7.

The trade ministry said Singapore's economy will grow about 3% in 2008 from a year earlier, the weakest pace in 7 years. Exports may decline as much as 4% this year, and shipments of electronics goods have fallen for 19 consecutive months. Growth has deteriorated as a slump in export demand forced factories to cut production, tourist arrivals faltered and a real-estate boom ended.

- I have been tracking Singapore's fall into recession for almost a year now, ever since the first reports started coming in around Dec 2007 about exports being down sharply, and months before that, when the slump in the electronics manufacturing sector looked like it wasn't going away any time soon.

The electronics sector can be considered a leading indicator of economic activity, as it is very capital-intensive, products get obsolete quickly with a very fast replacement cycle, and it is extremely sensitive to changes in consumer demand. So it has been, with Singapore's electronics exports down for 19 months running, the announcement of the economy falling into a technical recession finally made its way to the front pages of the Straits Times national newspaper.

Bear in mind that the Singapore GDP contraction of 6.3% is an annualized figure based on extrapolating the quarter-on-quarter results, hence this is called a technical recession, whereby there are 2 such consecutive quarters of contraction, based on the extrapolated figures. The year-on-year results are still in positive territory for now, and seeing how things are going, it is only a matter of time before Singapore officially goes into a full-blown recession, perhaps some time in 2009.

In order to support the economy, the MAS has had to change its monetary policy, and it is always a big deal whenever a central bank declares a change to its monetary policy. Inflation seems to be tapering off for the moment, with economic growth slowing down. But if you have been following the M3 money supply growth figures, not only of Singapore but also of countries around the world, you will notice that M3 growth rates have been slowing down, but also bottomed out in recent months and are on an up-trend again. Given slowing economic growth and rising money supply, it is only a matter of time before inflation roars back with a vengeance.

Hyperinflation : Zimbabwe inflation rate soars to 231 million percent

This article belongs to the Zimbabwe inflation watch story arc.

channelnewsasia.com :

Zimbabwe's annual inflation rate soared to 231 million percent in July 2008, confirming the daily hardships of a nation driven into poverty and trapped in a political impasse. Staggering increases in the price of bread and cereals were the main reason for the jump from the June rate of 11.2 million percent, the Herald said. Shortages of wheat are driving up bread prices. Harare-based economist Best Doroh said the actual inflation figure could be much higher, as a shortage of foreign currency has caused the value of the local unit to plummet daily.

Once hailed as a model economy and a regional breadbasket, Zimbabwe's fortunes have nosedived since 2000 when Mugabe seized white-owned farms and handed them over to landless blacks, often with no farming skills. But the government blames the country's economic meltdown on sanctions imposed by Britain and its allies. The currency is in freefall, unemployment is at 80% while food and essential goods are in short supply and the vast majority of people go hungry every day. The government has tried several measures including price controls and striking off 10 zeros from the country's currency to try to rein in galloping hyperinflation. Shops sometimes change the prices of goods more than twice a day while depositors line up in long queues at banks to withdraw cash which is rapidly losing its value. At the end of September, the bank also introduced 10,000- and 20,000-dollar bank notes.

- Just as I said earlier, if nothing in the underlying system is fixed, Zimbabwe's hyperinflation will roll on, and it has, indeed, rolled on. It has been barely 2 months since they chopped 10 zeroes from their currency, and it looks like they are adding the zeroes right back on again.

It's a ghastly situation. For outside observers, it's a sneak preview of what may yet come, if world leaders are not careful about the way they go about trying to fix the ongoing worldwide financial market meltdown.

(2008-10-12 10:22:45 SGT) [Biz] Permalink

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