SINGAPORE: As Singapore embraces the Year of the Dragon this weekend, some economists have sounded the alarm on potential distortions in economic data due to the unique timing of the holiday this year.
This year’s Lunar New Year celebration kicked off in February, unlike last year’s Lunar New Year public holiday period. Economists have cautioned that this shift in timing could lead to significant distortions in economic indicators, making it challenging to interpret early-year statistics accurately.
The Lunar New Year effect, a phenomenon well-known in the region, is expected to impact various economic indicators, reflecting the consequences of reduced working days and alterations in consumer behaviors associated with the festive season.
A report by Nomura Singapore Ltd highlighted the common practice of factories shutting down days before the official holiday, allowing workers to return to their hometowns. This results in fewer working days in February compared to January, affecting production and business activities.
Nomura’s analysis predicts an average distortion of -9.7 per cent in industrial production, with non-oil domestic exports and imports also significantly affected. The trade balance is anticipated to show a -$346 million average distortion, while retail sales might experience an average distortion of -5.3 percentage points.
However, the Purchasing Managers’ Index (PMI) is expected to remain unaffected, indicating no average distortion.
The examination conducted by Nomura is based on averaging the year-on-year growth rates or levels for specific economic indicators over January and February for each of the eight occasions when the Lunar New Year holiday fell in different months in successive years.
By comparing the reported growth rate during the Lunar New Year month with the average underlying growth rate, analysts have been able to estimate the holiday’s impact on Singapore’s economic data.
Besides local effects, the region’s trade data might face additional challenges due to ongoing shipping disruptions in the Red Sea. These disruptions could contribute to higher import costs and delayed export shipments, further complicating the economic outlook for the early months of 2024.
As businesses wind down in preparation for the Lunar New Year celebrations, the economic landscape in Singapore is poised for temporary fluctuations. Analysts are urging stakeholders and policymakers to consider these distortions when interpreting economic data during the initial months of the year, emphasizing the need for a nuanced understanding of the factors at play.