Singapore in Technical Recession

THE gloom was not just in the official news — that Singapore has slipped into technical recession, the first time since 2002 , and that this year’s economic growth might only hit 3 per cent.

It was even more visible in what several economists said: Next year could be worse.

Citigroup economist Kit Wei Zheng expects 2009 growth to be “slower, or even negative”. The last time Singapore experienced a full-scale recession was in 2001, when the economy contracted by 2.4 per cent during the year.

“Leading indicators are pointing decisively southwards, and gross domestic product growth could remain in negative territory in the first half of 2009 or possibly beyond,” he added.

In fact, some economists felt the current crisis could surpass the 1997 Asian financial crisis, eclipsing the post-911 and Sars slumps in recent years. Or even the recessions triggered by the 1985 Pan Electric collapse and 1973 oil shock.

And how quickly Singapore - the first Asian economy to slip into recession -- recovers hinges on whether Western governments and central banks can resolve the credit crisis in the months ahead.

“In the worst-case scenario, it will be far worse than anything we’ve seen before because we are talking about job losses which will cut across all industries,” said CIMB-GK regional economist Song Seng Wun.

And while the Government is expected to dip into its coffers, the arsenal at its disposal to stimulate the economy could be hampered by the resource crunch in the construction sector.

Said Singapore Management University economics professor Davin Chor: “The construction sector has relatively limited capacity to expand in the short term.”

But Mr Song argued that the construction crunch could be a blessing in disguise, given that building costs would “tumble quickly” by the first quarter of next year. Said Mr Song: “Projects, which have been put on the backburner, can be brought forward.”

And while much hopes are pinned on the upcoming Marina Bay Sands integrated resort- slated to open its doors next year — experts are cautious about its impact, especially when Las Vegas Sands — which clinched the licence to build the IR - has seen gaming earnings fall in its chief markets in the US and Macau.

Said Forecast economist Vishnu Varathan: “From the operators’ point of view, they may be facing their own financial difficulties. And a slowing economy means less visitors, less spending power.”

When contacted, Marina Bay Sands general manager George Tanasijevich said the group remains “100 per cent committed to Singapore and to helping Singapore achieve its tourism goals”.

According to official estimates, on a seasonally adjusted annualised basis, Singapore’s economy shrank by 6.3 per cent in the third quarter after contracting 5.7 per cent in the previous quarter - pushing the Republic into a technical recession.

The Monetary Authority of Singapore (MAS) said prospects of a recovery in the second half of next year “will depend significantly on how conditions evolve” in the regional economies, as well as those of US, Germany and Japan.

Prime Minister Lee Hsien Loong reiterated on Friday that Singapore is well-placed to ride through the “financial storm”, bouyed by the momentum from projects such as the recent Singapore Grand Prix.

Said Mr Lee: “... Our financial system is sound, and our economy remains competitive.

Over the last few years, when conditions were good, we had consciously decided to make the best of the good times and pressed on with upgrading and diversifying our economy. This will mean new and better jobs, even if some old ones are lost.”

Mr Varanthan expects the economy to grow 3 per cent next year — matching the official forecast for growth this year.

UOB economist Ho Woei Chen feels that the worst has yet to come.

Said Ms Ho: “The banks are the ones who have been hurt...We will see the crisis translating into the real sectors of the economy.”

Manufacturing will continue to be a drag on the economy, with the retail and services industry poised for a hit. But Singapore, where the banking scene is dominated by private banking, would likely be hurt less than its rival Hong Kong, Asia’s centre for investment banking, said Ms Ho.

Mr Varathan expects industries dealing in energy, food and water — which are not key drivers of Singapore’s economy — to be shielded from the downturn.

Ms Ho stressed there is still “a lot liquidity in the system”. Said Ms Ho: “If you go to restaurants, you can see a lot of people still spending.”

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