Singapore's recession reporting

Singapore has been in technical recession as of the end of March 2008 and based on this week's flash estimate of Q2, GDP will have shrunk again. So has the R word featured in the media?

Press releases from the MTI steer the journalists and market players to look at growth. The magic of seasonal adjustment makes the quarter on quarter numbers still look strong while the base effect impacting the year on year, quarterly numbers keeps the increment positive. Coupled with the government sticking to its 4% to 6% growth forecast for 2008 and everyone is happy. A cynic might ask if the focus on the incremental rather than the absolute GDP numbers is in some way related to the performance linked pay of Singapore's civil servants?

Back to the numbers ...
GDP at 2000 market prices in SGD million (source ESS)
Q2 2007 57,019.4, Q3 2007 58,842.3, Q4 2007 58,538.6, Q1 2008 58,362.7.

So Q1 08 is lower than Q4 07, which is lower than Q3 07. Technical recession?

And the "good news" flash estimate for Q2 2008 is growth of 1.9%. Based on Q2 07, this actually points to a further fall in output to around SGD58.1bn for Q2 2008.

The inflation rate has "arrested" some attention in the media, which at 7.5% yoy to May 2008 is uncomfortably high and this is despite a currency being held at the strong end of its trade-weighted range. Comments on the decline in labour productivity have been few and far between. The country wants the influx of foreign workers to continue; unfortunately they are failing to stimulate the economy.

Journalists are commenting on the very low interest rates in Singapore, mainly because savings rates for depositors are at derisory levels. With a full blown recession underway, low interest rates in Singapore are desirable. Despite the minimal cost of funds, the rate of monetary growth has been declining in recent months from the >20% levels seen in much of 2007 and was down to 9.0% in the year to May 2008.

So why is money attracted to Singapore? Is it the safe haven of the East? Property prices have had a good run supported by foreign investors, but at what stage, if at all, do the investors react to the weak growth and high negative real interest rates and dump SGD assets? Can energy-intensive Singapore survive in a world of high oil and food prices? While the great man is still with us, the chances are good.