Despite the mainstream media’s spin, chances are that things will get worse

The advance estimates of GDP figures released by the government on 14th April underscored the deteriorating economic situation in Singapore.  The government had to revise – for the third time – its figures after the economy suffered its largest ever quarterly contraction: it now expects the economy to shrink by 6%-9%, a significant change from its previous estimate of 2%-5%.

Despite these bleak figures opinions are still divided about the severity of the economic outlook.  The Today paper carried an article highlighting this, though the analysts whom the paper interviewed seemed to think that the government was taking an overly-bearish view out of caution, particularly since it fallen on its face after sound too bullish a few months ago.  The Straits Times was more optimistic, saying that the situation is “not as bad as it looks” as the worst months were January and February and the economy had showed signs of improvement in March.

The mainstream media appears to be doing its best to put a positive spin on the situation.  That is understandable, since the government probably realises the importance of keeping up ‘animal spirits’.  Nevertheless, such optimism should not be overstated, as there are reasons to believe that the worst might still be ahead.

One factor is the crashing housing market, where the bulk of household wealth is concentrated.  The Economist magazine estimated on 19th March that house prices fell by 4.7% in the first quarter of 2009 after robust growth in the last quarter of 2008; for the first time in two years, HDB’s resale price index has gone into reverse.  A report by PropertyWire on 11th April estimated that repossession of properties has increased by 18% in the same period, a number that is thought will continue to rise through 2010.  The southbound property market is likely to cause the bad loans held by local banks to spike; it might also make it more difficult for households to sell their homes to raise liquidity.

Tourism, a big component of the economy, is in the woods as well, with tourist arrivals down 15% in February over the previous year, and is likely to worsen.  The so-called upturn in exports in March cited by the Straits Times in its report has to be qualified: despite this increase the government actually lowered its overall forecast for non-oil domestic exports the year, expecting it to shrink between 10%-13%. 

There are few signs that the vital manufacturing sector, so dependent on exports, has turned the corner: consumer spending in the US is likely to be depressed for a long while – retail sales in the US fell in March – as households are heavily indebted and the housing market remains weak; China recorded a slow 6.1% for the first quarter of 2009 – the lowest rate since 1992 – though given the notorious unreliability of official statistics, this might even be an overstatement.

The upshot is that the effect on ordinary folk could worsen.  Retrenchments and redundancies in the last quarter of 2008 nearly quadrupled over the preceding one according to government statistics, and it is likely that these have not abated.  Despite the media focus on so-called PMETs (professionals, managers, executives and technicians) losing their jobs, statistics show that the proportion of retrenchments is still weighted in the direction of lower wage workers.  And in spite of the government’s constant admonishment that Singaporeans were being choosy about jobs, the huge crowds at recruitment fairs give a hint that the demand for work might be exceeding supply.

Even so, there are signs that the government feels that it has done enough: just last week, the prime minister announced that no new fiscal measures were necessary; two days ago, the central bank gave a half-hearted push towards easing monetary policy.  Economists have usually argued that it is better to over-do fiscal stimulus than to under-reach – the government’s caution may yet result in the economy undergoing far more painful times before it recovers.


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