Thursday July 10, 2008

Singapore GDP shrinks 6.6% in Q2 2008 as stagflation continues

This article belongs to the Singapore stagflation watch story arc.

channelnewsasia.com -> app.mti.gov.sg :

Singapore's real gross domestic product (GDP) registered an estimated 1.9% on a year-on-year basis in the second quarter of 2008. Statistics released by the Ministry of Trade and Industry [MTI] on Thursday [10 Jul 2008] showed that the slowdown reflected a sharp contraction in the biomedical manufacturing output. On a quarter-on-quarter seasonally-adjusted basis, real GDP declined 6.6% following an increase of 15.6% in the previous quarter. The manufacturing sector is estimated to have contracted by 5.6% in the second quarter, compared with a 12.7% growth in the first quarter. The electronics cluster also registered some decline due to weakening foreign demand. However, the transport, engineering and chemicals industries continued to grow.

bloomberg.com :

Asian governments are torn between efforts to rein in surging prices and the need to shore up growth. Singapore Finance Minister Tharman Shanmugaratnam yesterday [9 Jul 2008] warned there is a limit to how much the country's dollar can gain to fight inflation, as any "dramatic strengthening" of Asia's third best performing currency this year may hurt exports "badly."

- The economic outlook looks cloudy, with reports that continue to confirm that we are not only heading into, but may already be in a stagflationary environment. I have been watching the economic reports with concern for the past months, waiting for the lag effect of the housing- and credit crisis-led US slowdown and subsequent recession to hit Singapore. I reckoned that it would take half a year to at most a year. And now it looks like we are getting hit hard.

The quarter-on-quarter Singapore GDP reports are looking increasingly gloomy, with the earlier report of a 4.8% GDP shrinkage in Q4 2007, followed by a relatively better subsequent quarter, and now we are back in GDP contraction mode again. The headline year-on-year Singapore GDP growth rate does not look very good either, at only 1.9%. Given that the M3 money supply growth rate has been running at around 12% in the past months, that makes for a real inflation rate, from an Austrian economic basis, of around 10%. Which is somewhat higher than the official CPI figures of 7.5%.

It would be officially stagflation in Singapore if the headline year-on-year GDP growth rate falls into negative territory, and inflation continues at its present rate or even increases. Can the Singapore economy try to eke out a positive reading in the subsequent quarters or will it fall below zero? We shall see about that. Crude oil prices not too far from recent record highs, increased petrol and diesel prices, and electricity rate increases are certainly not helping the situation at all.

See also :

1. Singapore stagflation : May 2008 exports fell most in 17 months; inflation at 26-year highs
2. Singapore industrial production unexpectedly dropped in Apr 2008 on drugs, electronics
3. Singapore GDP unexpectedly shrinks on weaker output
4. Singapore economy shrinks first time since 2003
5. Singapore CPI inflation rate for May 2008 continues at 26-year high of 7.5%

(2008-07-10 13:21:51 SGT) [Biz] Permalink

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