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Government initiatives such as Resilience Package unlikely to provide significant boost to Singapore’s economic growth: Credit Suisse

Government initiatives with a focus on social spending and infrastructure projects may not have “a strong impact” on Singapore’s economic growth unless global Gross Domestic Product (GDP) growth exhibits “sustained recovery” from the effect of the Sino-US trade war, according to Swiss multinational investment bank Credit Suisse AG.

The prediction was made in reference to Deputy Prime Minister Heng Swee Keat’s statement last month regarding an upcoming package to assist businesses and workers in the event of a significant economic recession, even if a full-year recession may not be very likely at present.

“The Government is monitoring the situation closely, and is working with employers and unions to prepare for all scenarios … The Future Economy Council will continue with our industry transformation plans, build stronger enterprise capabilities, and make the most of the opportunities around us,” said Mr Heng.

Credit Suisse, in its latest report on Singapore’s market strategy, cited the example of the S$20.5 billion Resilience Package, which was introduced by the government during the Global Financial Crisis around a decade ago to halt unemployment, encourage bank lending and prompt the flow of cash through business.

“Some of the key initiatives within the Resilience Package include expanding recruitment for the public sector and jobs credit scheme, stimulating bank lending through special risk-sharing initiative for bridging loans and trade financing, bringing forward of infrastructure projects, as well as tax concessions,” the report noted.


However, Credit Suisse suggested that China’s improved economic indicators appeared to have a stronger link to Singapore’s economic recovery during that period in 2009, as the coincidental improvement was observed even prior to the aforementioned initiatives laid out by the government as seen in Figure 56.

“With most of the past initiatives centred around subsidies to boost employment, social spending to support households, as well as fiscal expansion through government infrastructure spending, we do not expect government measures to have a strong impact on economic growth immediately barring a sustained recovery in global GDP growth,” Credit Suisse added.

Singapore’s GDP growth markedly slowed down in Q2 this year in comparison to other “Asian Tigers”: Credit Suisse

Credit Suisse observed that Singapore’s GDP growth in the second quarter of this year has “slowed more significantly compared” in contrast to regional competitors in international trade such as Hong Kong and South Korea.

Hong Kong’s GDP grew by 0.6 per cent, South Korea by 2.1 per cent, and Taiwan by 2.4 per cent, while Singapore’s GDP grew only by 0.1 per cent, noted Credit Suisse, as seen in the graph below.

Source: Credit Suisse

Credit Suisse also predicted a further gradual decline in Singapore’s GDP from the 3.4 per cent recorded in the second quarter of this year, possibly bringing the prospect of a “technical recession”.

From a year-on-year (YoY) perspective, a GDP growth of 0.5 per cent is projected to take place, which Credit Suisse posited to be a significant slowing down from the 3.1 per cent recorded last year, and is below the Ministry of Trade and Industry’s prediction of 1.5 per cent to 2.5 per cent.

“Our more conservative forecast is driven by our cautious view on the manufacturing sector, where we expect a decline of 3.2% YoY led by contraction in the electronics cluster. This is unlikely to be offset by the construction and services sectors,” said Credit Suisse in its report.

While electronics manufacturing contributed to 80 per cent of the growth in value-add in the sector in 2017 and 2018, Singapore’s manufacturing sector may still take a hit as its growth is predicted to “reverse sharply” in the second half of this year. A “weakness in trade-related sectors is likely to dampen services demand”, according to Credit Suisse.

Even strong growth in other industries such as information and communications may not be sufficient in offsetting the decline in manufacturing and retail trade, as the sector only makes up 4 per cent of Singapore’s GDP.

“The information and communications sector has been a relative bright spot in the economy, growing at close to 5% per annum since 2016. The strong performance has continued through 1Q19 with 6.6% YoY growth.

“Even with our expectation for growth to remain strong at 6.5% YoY in 2019, we do not expect this to be able to offset weakness in other segments as it represents just 4% of total GDP,” Credit Suisse predicted in its report.

Return on equity for Singapore market fell to 20-year low last year: Credit Suisse

The return on equity (RoE) — which measures companies’ financial performance by dividing net income by shareholders’ equity — for the Singapore market has also fallen to a two-decade low of 7.6 per cent last year despite a sharp increase in gearing.

Singapore’s Cash Flow Return On Investment (CFROI) last year is “the lowest level over the last 20 years” in spite of the ongoing corporate action to boost returns”, noted Credit Suisse, some of which include carge cap stocks such as Singtel and SIA.

“Consensus earnings estimates suggest a potential CFROI recovery in 2019 and 2020, but the optimism is tapered by persistent earnings cuts over the last 12 months,” added Credit Suisse.