Singapore Markets closed

Cloudy with a chance of recession

SINGAPORE (July 19): Consecutive releases of depressing economic data have dampened sentiment and raised the spectre of Singapore’s falling into a recession. Policymakers and economists have recalculated their growth projections and the results are grim: The economy is forecast to expand as little as zero to 1% this year.

Yet, a downturn should come as no surprise. The protracted, tit-for-tat trade war between the US and China, as well as lingering global economic sluggishness, is bound to take its toll on Singapore’s small, very open and trade-dependent economy.

According to World Bank data, Singapore has one of the highest trade-to-GDP ratios in the world. The ratio is an indicator of how important international trade is to an economy. In 2018, Singapore’s trade was 326% of its GDP, second after Hong Kong’s 376%. For further comparisons, Vietnam’s was 188% of its GDP and Thailand’s, 123%. The European Union’s was 86%, the US’ was 27% and China’s was 38%.

Singapore has proudly proclaimed its status as one of the world’s busiest ports and top transshipment hubs, leveraging its historical renown as an entrepot.

In 2018, total exports were valued at $555.7 billion and GDP was $491.2 billion. Non-oil domestic exports for the year totalled $182.1 billion and non-oil re-exports amounted to $270.3 billion. The bulk of the exports and re-exports was machinery and transport equipment, and chemicals and chemical products. Singapore’s major export partners are the US, Japan, Australia and China, in that order.

But what has been Singapore’s strength is fast turning into a vulnerability. The city state’s outsized reliance on external demand means a major part of its economy is not actually under its control. Every time there is uncertainty elsewhere — Brexit; who the next US president is going to be and what his or her approach to foreign policy and trade will be; slowing growth in China — there will be doubts over Singapore’s economic growth rates, which will then be reflected in poor trade figures for the pertinent period.

Since the global financial crisis in 2009, concerns of a downturn have been raised a few times. To be sure, top government officials have come out to assure people and the markets that Singapore’s economy is sufficiently resilient. “We’re not expecting a full-year recession at this point, and there remain areas of strength in our economy,” says Deputy Prime Minister Heng Swee Keat in a July 12 post on Facebook, referring to the information and communications, and construction sectors.

Earlier that week, Minister for Trade and Industry Chan Chun Sing also pointed to those sectors as “pockets of strength”. Responding to questions in Parliament, Chan said Singapore’s economy had sound fundamentals, a good fiscal position and ongoing economic restructuring that would help it weather the challenges ahead. He also outlined the government’s three-pronged strategy in managing the fallout from a global trade war: strengthening its competitive advantages, such as its political stability and extensive links to the global supply chains; developing new business sectors, such as agri-tech and precision medicine; and promoting regional business and economic integration.

Meanwhile, according to Manpower Minister Josephine Teo in a Facebook post, also on July 12, about 60,000 jobs are up for grabs. She says there are 30,000 PMET (professionals, managers, executives and technicians) vacancies, particularly in the financial services, professional services and infocomm technology sectors. Positions include software and web developers, systems analysts and managers in business development, and sales and marketing, which are expected to pay roughly the median wage of between $4,000 and $5,000 a month. Teo adds that the Digital Industry Singapore office aims to create about 10,000 new jobs in the tech sector over the next three years.

“Should we be concerned? I would be if our people haven’t noticed or think nothing of it,” Teo writes, referring to the gloomy 0.1% GDP growth in 2Q2019.

“Practically every union leader I meet is paying close attention. So too the many professionals, executives and business leaders in all industries. But they are not in a state of panic. Most of them know that it is in the nature of business cycles,” she says. “We are ready whenever more employment support is needed.”

Certainly, Singapore’s political stability and the strength of its policies and institutions will be what brings the country through difficulties. Over the last six decades of its existence, the ability to plan, execute, adapt and diversify from cheap manufacturing to adjacent industries and eventually high-value services, as well as the leveraging of its stability and efficiency to attract substantial foreign investment, has brought Singapore out of obscurity to prosperity. Indeed, as Chan also noted in Parliament, the Economic Development Board is on track to achieving its target for the year of between $8 billion and $10 billion in fixed asset investments. However, that target has not shifted much in the last few years.

The coming decades will need a new formula. As much as Singapore’s fortunes are tied to the global economy’s, so is its exposure to the uncertainties and shocks.

This story first appeared in The Edge Singapore (Issue 891, week of July 22) which is on sale now. Subscribe here