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 ©The
Straits Times, Singapore (Used by permission)
by Fiona Chan
SINGAPORE is in a technical recession after the economy slipped into negative
territory for the second quarter in a row, dragged down by a slump in exports
and a weak property market.
But the real recession, which usually portends job losses, will probably come
next year when the Republic feels the full impact of the global economic
slowdown, warned economists.
Many have lowered their growth forecasts and are now tipping 0 to 3 per cent
growth next year.
The economy shrank in the third quarter, declining by a worse-than-expected 0.5
per cent from a year ago, according to estimates released yesterday by the
Ministry of Trade and Industry (MTI). Compared with the previous quarter, the
economy declined 6.3 per cent, on top of a 5.7 per cent contraction in the
second quarter, the ministry said.
Aside from growth in the first quarter, the economy contracted
quarter-on-quarter in three of the last four quarters. This is the first
technical recession since 2002, after the dot.com bust. Lowering the official
forecast for full-year growth for the third time this year, the ministry now
expects the economy to grow at 'around 3 per cent' this year, down from 4 to 5
per cent. The original prediction was 4.5 to 6.5 per cent growth.
'External economic conditions have deteriorated more than expected and some
sectors of the economy have weakened significantly,' it said.
With the deepening global financial crisis, demand for exports has dropped,
hitting Singapore's key manufacturing sector, which shrank by 11.5 per cent in
the third quarter amid a protracted slump in pharmaceuticals and electronic
output.
Construction and services held nastier surprises. Construction, which had been
powering along at double-digit growth, abruptly halved to lodge single-digit
expansion for the first time since 2006.
MTI said that despite 'a strong pipeline of construction projects', a shortage
of contractors, engineers and project managers had caused building delays.
Economists also pointed to the lacklustre property market, where a standstill in
home sales has prompted developers to delay launching and building projects.
With no relief in sight, construction growth is likely to stay at this slower
pace.
But a boost could come from the Government bringing back $2 billion worth of
building projects it had put off earlier this year to ease the construction
squeeze, suggested OCBC economist Selena Ling.
The services sector held no bright spots either, cooling to lower growth as
financial market activities slowed while the subdued property market weighed
down on the real estate services industry.
'This suggests that the global slowdown has had a much greater knock-on effect
on services than we had anticipated and marks the start of a more protracted
decline in services growth,' said DBS economist Irvin Seah.
The key worry in this, he said, is that services employs the bulk of the labour
force and lower growth may lead to job losses.
But Ms Ling noted that the unemployment rate remains at very low levels, so
retrenchments may not hurt so much. She said: 'If job losses come mainly from
manufacturing, most of the people hit will be foreign workers.'
To address growth concerns, the Monetary Authority of Singapore has eased
monetary policy, setting a zero appreciation stance for the Singapore dollar.
But economists said more immediate measures may be needed in the form of fiscal
stimuli, focusing on lower-income groups and retrenched workers.
What's a technical recession?
A TECHNICAL recession is defined as two consecutive quarters
in which the economy has shrunk compared to the previous quarter.
The size of the economy is measured in terms of the total value of goods and
services produced in a country, also known as its gross domestic product, or
GDP.
Generally, the duration of a recession is the full period of the business cycle
that economic activity is in decline.
There is no universally accepted way to measure a 'real' recession. Some suggest
a full-year economic contraction or two consecutive quarters of the economy
shrinking compared to the same period in the previous year.
Singapore's last 'full-scale' recession was in 2001, when the economy shrank 2.4
per cent during the year after the bursting of the dot.com bubble.
VOICES
'At this point, the impact on companies is not significant yet...Big and small
companies are going to face the same situation going forward: It's a liquidity
problem that's not resolved yet. It started with sub-prime. Now we have gone
into corporate loans.
'Companies should get prudent on cost control and manage cash carefully. They
have to be very careful before making major investments. On the Government side,
we have to think of how (to ensure that) liquidity does not dry up. Viable
businesses may not be able to get bank loans.
'The job situation remains OK. Let's say the integrated resorts take off.
Singaporeans must be prepared (to switch jobs). There's also a chance the IRs
won't take off, because people lost their wealth. We may go into an unemployment
situation. I want to be realistic. We should not be surprised if it comes. We
must be prepared to manage it.'
Mr Inderjit Singh, MP and chairman of the Government Parliamentary Committee
for Finance and Trade and Industry
'We are concerned that in a slowdown, there could be retrenchment. More needy
residents will come to the Community Development Council (CDC) for social and
job assistance. We don't know how severe the repercussions will be. We don't
know the impact on the industries.
'If people lose their jobs, families will be under stress, especially
lower-income families. They have very little savings.
'At the CDC level, we are working out various schemes to see how we can help
needy families. We have started a food aid fund. We ask people to pledge $100
per month to purchase food rations for needy residents. We started with donated
canned food. Now we give dry rations and frozen food vouchers. We may look into
providing hot meals.
'We are also doing more in terms of job matching, to help people find jobs as
quickly as possible.
'Singaporeans should look into cost- cutting: do away with all those wants, be
more prudent in terms of their spending. Go for skills upgrading to increase
your earning capacity and your employability.'
MP and North West district mayor Teo Ho Pin
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