Download for Kindle



Asia Pacific Economic Outlook, November 2012

Owing to a contraction in the manufacturing sector, Singapore’s economy decelerated in the third quarter of 2012. This could be accompanied by weaker export growth and supply chain disruptions.

Initial estimates indicate that Singapore’s economy decelerated in the third quarter of 2012, and grew at a mere1.3 percent. The economy was not expected to slow down, especially after a better-than-expected performance in the second quarter. However, a slump in the manufacturing sector and a drop in construction activity resulted in a drag on overall GDP growth. Industrial production fell by 2.5 percent over the previous year; consensus estimates called for a 2.2 percent expansion. Once again, Singapore’s growth forecast has been lowered. The possibility of a rebound is fairly remote, especially amid concerns around the “fiscal cliff” in the United States and a slowdown in Europe. The Monetary Authority of Singapore (MAS) projected GDP growth between 1.5 and 2.5 percent in 2012.

The decelerating growth was largely due to a contraction in the manufacturing sector. In the third quarter, manufacturing activity declined at an annualized rate of 3.9 percent over the previous quarter. Within manufacturing, production in the electronics sector fell by 12.2 percent. In addition, biomedical sector output dropped 6.9 percent, owing to an 8.9 percent decline in pharmaceutical production. For the third consecutive month, Singapore’s Purchase Manager’s Index (PMI) signaled deteriorating conditions for the manufacturing industry. The PMI fell from 49.1 in August to 48.7 in September. On the other hand, additional aerospace production capacity and increased rig-building activity boosted output for the transport engineering sector. Furthermore, precision engineering expanded, albeit at a slower pace. The performance of Singapore’s manufacturing industry is largely consistent with other countries. However, persistent underperformance in this sector could result in broad-based economic weakness.

Meanwhile, high inflation continues to pose challenges for policymakers. Consumer prices rose 4.7 percent in September, much faster than economists anticipated. The MAS refrained from easing its monetary policy amid higher food costs. Furthermore, tightness in the labor market exerts upward pressure on wages, which subsequently lead to higher consumer prices. Although demand-side pressures remain fairly weak, Singapore has experienced a persistent price increase in the cost of services, particularly health care. Economists suggest that a delay in the planned reduction of car production could ease the cost of private road transport, which has been one of the main contributors to inflation. In addition, reassessing government restrictions on immigration may dampen labor-cost pressures and wage inflation.

However, a slump in the manufacturing sector and a drop in construction activity resulted in a drag on overall GDP growth.

Quantitative easing in the developed world led to increased capital flows into Asian markets. Money found its way into Singapore’s housing market, resulting in a steep increase in housing prices, and the government is struggling to contain the price rise. Housing prices edged up 7.7 percent in September after a 7.4 percent increase a month earlier. Several rounds of cooling measures have had little effect on housing prices in Singapore, but the government has announced further measures. The government may limit the timeframe on all housing loans to 35 years. Loans that last more than 30 years or extend past the retirement age of 65 will come at a significantly higher price. Previously, buyers could borrow up to 80 percent of the value of their first property. Under the new guidelines, that limit has been lowered to 60 percent for buyers seeking long-maturity loans. Furthermore, the government introduced additional stamp duties on sellers.

Singapore’s economy is likely to confront a number of challenges in the coming months. Dependence on export-driven growth adds vulnerability to the current economic environment. Weakness in the electronics sector, which accounts for nearly a third of the country’s manufacturing output, is worrying. Furthermore, a decline in manufacturing output could also result in disruptions in manufacturing supply chains.

Asia Pacific Economic Outlook, November 2012
Cover Image by Stephanie Dalton
  • Tags

    This article is not tagged.
  • Collections