By The Independent Singapore
The flash estimate of 3.7% real GDP growth for Singapore’s economy in Q2 2013 was greeted with relief, after a first quarter growth rate that was almost zero. The seasonally adjusted quarter-on-quarter growth rate of 15.2% also suggests that the economy is building up momentum – especially when compared with the equivalent figure of 1.8% in the first quarter.
But it is too early to pop the champagne. The final figure could still be adjusted downwards when the Q2 Economic Survey is released on Monday 12 August, in light of weak export and production data. Industrial production contracted by 5.9 per cent in June – and by 0.5 per cent if the biomedical sector is excluded. Non-oil domestic exports fell 8.8 per cent in June.
More importantly, the economy faces headwinds as it moves through the second half of the year – mostly stemming from lackluster global conditions that will weigh on the manufacturing sector and perhaps other sectors as well.
While all signs point to a genuine pace of recovery in the US economy, US GDP growth came in at only 1.4% in Q2 and US unemployment remains stuck at 7.6% – not enough to compensate for the global effect of a slowing China, a still-contracting Eurozone and a still-not-yet resurgent Japan.
The global outlook for the rest of 2013 is far from encouraging. China is likely to continue to slow down, with economic growth hovering above 7 per cent, which is a slow-down by Chinese standards. Europe is still deeply mired in structural problems, with the North-South divide remaining as stubborn as ever. And while the US housing market recovery is real, a comprehensive deal between the President and Congress on the budget deficit – which might unlock more growth – remains elusive.
In Singapore, the medium-to-long term outlook reveals a cup that is either half full or half empty, depending on your perspective. Productivity growth remains in the doldrums, meaning that economic restructuring to wean the country off low-cost foreign labor probably has a long way to run. A weak global outlook and some internal weaknesses mean that manufacturing will remain constrained. The US Fed’s shift away from monetary easing may also cool parts of the financial services sector.
But there are glimmers of light amidst the dark clouds. Healthy Southeast Asian economies and decent fundamentals mean that tourism will continue to perform well, provided the haze is kept at bay. And the construction sector is still benefitting from the uptick in government-led construction projects relating to infrastructure and HDB flat building – it grew by a healthy 5.6 per cent in the second quarter.
Another piece of good news is that inflation in Singapore remains under control. Headline inflation hit 1.8 per cent in June, up from May’s 1.6 per cent but still well below the five per cent level that had been seen in the recent past. MAS core inflation (which removes accommodation and vehicle-related inflation) came in at 1.7 per cent, almost equivalent to headline inflation. This suggests that policy measures to cool the housing and vehicle markets are working. But these are still leaving core inflation at a level close to two per cent – which, while not high compared to past norms, will still take a bite out of real earnings for Singapore workers.
For the remainder of 2013, the downsides seem to outweigh the upsides, as global weakness combines with economic restructuring to inflict some pain on the economy. Beyond 2013 it will be a different game – that of raising the bar on Singapore’s fundamental competitive strengths in exportable services and high-end manufacturing.