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Country report SINGAPORE Summary The Singaporean economy is slowing against the backdrop of weaker global growth and heightened global uncertainty. While export growth has fallen, domestic demand has remained resilient amid a robust labor market. The outlook is clouded by significant downside risks from the external sector. The key risks are a sharp and protracted downturn in large advanced economies and extreme financial stress spreading from the eurozone. Fortunately, the country’s healthy public finances, strong net-creditor position, solid economic fundamentals, and stable political environment all give us comfort that the recovery will not be derailed completely. In specific, the monetary and fiscal authorities still have ample room to buoy growth should external environment deteriorate considerably. Things to watch: Economic growth in major trading partners (especially in Asia) Stress in the global financial markets Stance of monetary and fiscal policy Author: Shahin Kamalodin International Macro Economic Research Economic Research Department Rabobank Nederland Contact details: P.O.Box 17100, 3500 HG Utrecht, The Netherlands +31-(0)30-21-31106 [email protected] April 2012 Rabobank Economic Research Department Page: 1/4 Country report SINGAPORE Singapore National facts Social and governance indicators rank / total Type of government Parliamentary Republic Human Development Index (rank) C apital Singapore Ease of Doing Business Index (rank) Surface area (thousand sq km) 0.7 Index of Economic Freedom (rank) 2 / 179 Population (millions) 5.1 C orruption Perceptions Index (rank) 5 / 183 Main languages Mandarin (35%) Press Freedom Index (rank) English (23%) Gini index (income distribution) 42.5 Buddhist (42.5%) Population below $1.25 per day (PPP) n.a. Main religions 26 / 187 1 / 183 135 / 178 Muslim (14.9%) Head of State (president) Taoist (8.5%) Foreign trade Tony Tan Keng Yam Main export partners (%) 2010 Main import partners (%) Head of Government (prime-minister) Lee Hsien Loong Hong Kong 12 Malaysia 12 Monetary unit Malaysia 12 US 11 C hina 10 C hina 11 6 Japan 8 Dollar (SGD) Economy Economic size 2011 bn USD % world total US Main export products (%) 2011 Nominal GDP 260 0.38 Electronic components & parts 21 Nominal GDP at PPP 247 0.31 Mineral fuels 27 Export value of goods and services 542 2.47 C hemicals and chemical products 13 1408 0.65 Miscellaneous manufactured articles 2011 5-year av. Real GDP growth 4.9 6.6 Machinery and transport equipment 41 Agriculture (% of GDP) n.a. 0 Mineral fuels 33 Industry (% of GDP) 27 29 Manufactured goods 7 Services (% of GDP) 66 67 Miscellaneous manufactured articles 7 USD % world av. IMF quotum (in mln SDR) Economic structure Standards of living 7 Main import products (%) 2011 Openness of the economy 2011 Nominal GDP per head 49947 464 Export value of G&S (% of GDP) Nominal GDP per head at PPP 47427 384 Import value of G&S (% of GDP) 209 183 Real GDP per head 34604 426 Inward FDI (% of GDP) 13.7 Source: EIU, CIA World Factbook, UN, Heritage Foundation, Transparency International, Reporters Without Borders, World Bank. Economy The Singaporean economy’s massive exposure to external shocks (exports are about two times GDP) meant a recession in 2009 was unavoidable. Yet, the recovery has been as swift as the contraction (GDP grew by 14.7% and 4.9% in 2010 and 2011, respectively). The swift revival in global trade and more settled financial markets propelled Singapore’s export-oriented activities with knock-on effects on private domestic demand. On the domestic front, the authorities’ response to the worsening business cycle was forceful and comprehensive—a massive fiscal stimulus (accounting for roughly 8% of GDP), decisive monetary easing, and an array of measures to ensure financial stability and market functionality. The most recent data show that activity has rebounded strongly following contraction in 11Q4. The economy grew by 9.9% q-o-q on an annualized basis in 12Q1, following the 2.5% contraction in the preceding quarter. Going forward, we expect the economy to grow at a modest pace against the backdrop of a deteriorating external environment and a sharp increase in global risk aversion. Exports and investment are expected to slow in 2012 while consumption will likely be slightly dampened by increased precautionary saving by households. We do not expect consumer spending to weaken sharply due to the robust labor market (unemployment fell to 2% in September 2011). The country’s main near-term risks are a protracted slowdown in advanced economies and a sharp increase in global financial stress —not our base-case scenario at this juncture. Given Singapore’s April 2012 Rabobank Economic Research Department Page: 2/4 Country report SINGAPORE openness, these shocks would hit the Singaporean economy hard; through weaker exports, reduced capital inflows, slower credit, and a fall in financial market activity. The IMF estimates that a 1%-point fall in global growth would lead to a decline in Singapore’s growth by about 1.7-1.9% points. To this end, the country’s economic performance may disappoint if the simultaneous public and private sector retrenchment in the West result in a sharp slowdown in global economic activity. Adverse spillovers through regional linkages could also arise from a hard landing in China –though this entails a tail risk, in our view. Overall, GDP growth is projected to slow to 2.7% this year, before recovering to 3.8% in 2013, according to the IMF’s latest forecast. This is a significant slowdown from the growth figures witnessed prior to the financial crisis. The good news is that the authorities have sufficient policy space to deploy a decisive response in case the economy weakens significantly. In specific, the government’s strong fiscal position does allow it to introduce, as in 2008, a discretionary stimulus package to mitigate the impact from adverse external shocks. There is also scope for monetary policy to become more accommodative if the situation warrants it. Higher growth in 12Q1 in combination with still high inflation rate (4.6% y-o-y in February) led the Monetary Authority of Singapore (MAS) to slightly tighten the policy stance in April. The nominal effective exchange rate (NEER) policy band was raised slightly1. Banking Sector Singapore's financial sector remains in relatively good shape. Systemic risks are mitigated by several considerations:(i) the majority of mortgages have loan-to-value ratios (LTV) below the regulatory ceiling and (ii) low unemployment together with strong household balance sheets suggests few home-owner delinquencies in the pipeline. What’s more, the tier-1 capital ratio averaged 13.5% in September 2011, the liquid asset ratio of the domestic banks was about 9% and the NPL ratio was a mere 1.2%. All these indicators imply ample cushions over statutory requirements. Lastly, foreign banks are subject to strict licensing procedures. Against this backdrop, the downward risks associated with any moderate property price corrections would be manageable. As for the property market, following a steep decline in 2008−09, house prices rebounded strongly and are now above the previous peak. House prices have outpaced median household incomes, leading to a decline in home affordability. The authorities have responded by undertaking several measures to contain demand and boost supply. These have helped reduce transaction volumes and moderate house price increases. Slower economic growth and the uncertain outlook should have a further dampening effect. Even in the event of sharp price movements, risks for financial stability seem contained. Moody’s estimated that even in a scenario where the NPL ratio rises to a highly stressed 15%, the three Singaporean banks would report losses but still have a tier-1 capital ratio above 8%. 1 Note that Singapore runs its monetary policy based on a band for the SGD NEER. It adjusts and affects monetary policy by moving the band up or down. April 2012 Rabobank Economic Research Department Page: 3/4 Country report SINGAPORE Singapore Selection of economic indicators 2007 2008 2009 2010 2011 2012e 2013f GDP (% real change pa) 8.9 1.7 -1.0 14.8 4.9 3.0 4.4 C onsumer prices (average % change pa) 2.1 6.6 0.6 2.8 5.2 4.0 3.5 27.2 14.7 19.0 21.8 19.3 19.6 19.6 Key country risk indicators C urrent account balance (% of GDP) Economic growth GDP (% real change pa) 8.9 1.7 -1.0 14.8 4.9 3.0 4.4 17.4 13.0 -2.9 7.0 3.3 4.1 4.3 Private consumption (real % change pa) 6.8 3.3 0.1 6.5 4.1 3.1 4.1 Government consumption (% real change pa) 2.6 6.4 3.6 11.0 0.9 3.7 4.0 Exports of G&S (% real change pa) 9.0 4.7 -7.8 19.1 2.6 2.3 6.0 Imports of G&S (% real change pa) 8.1 9.5 -11.1 16.2 2.4 3.5 6.5 Budget balance (% of GDP) 3.1 1.5 -1.0 0.2 1.3 0.1 0.9 Public debt (% of GDP) 87 95 108 104 98 97 96 Money market interest rate (%) 2.4 1.0 0.7 0.4 0.4 0.4 0.8 Gross fixed investment (% real change pa) Economic policy M2 growth (% change pa) 13 12 11 9 10 11 12 C onsumer prices (average % change pa) 2.1 6.6 0.6 2.8 5.2 4.0 3.5 Exchange rate LC U to USD (average) 1.5 1.4 1.5 1.4 1.3 1.2 1.2 Recorded unemployment (%) 2.1 2.3 3.0 2.2 2.0 2.0 2.0 Balance of payments (mln USD) C urrent account balance 48384 27887 35207 49558 50158 53530 58670 46676 28035 29378 46758 48471 52630 55150 Export value of goods 303408 343931 273997 358485 414765 426210 455920 Import value of goods 256732 315896 244619 311727 366294 373580 400760 Services balance 10455 11890 14241 15845 18100 19420 22890 Income balance -5705 -8303 -4413 -8229 -10149 -12520 -13080 Transfer balance -3041 -3733 -4000 -4815 -6263 -6000 -6290 4331 8844 -3185 18898 17565 7280 12010 Trade balance Net direct investment flows External position (mln USD) International investment position Total assets Total liabilities 357902 295809 411447 528840 n.a. n.a. n.a. 1209150 1118490 1320780 1646260 n.a. n.a. n.a. 851248 822681 909333 1117420 n.a. n.a. n.a. Key ratios for balance of payments, external solvency and external liquidity Trade balance (% of GDP) 26.3 14.8 15.8 20.6 18.7 19.2 18.5 C urrent account balance (% of GDP) 27.2 14.7 19.0 21.8 19.3 19.6 19.6 Inward FDI (% of GDP) 20.9 4.5 8.2 17.0 13.7 9.2 10.8 International investment position (% of GDP) 201.5 155.7 221.6 232.6 n.a. n.a. n.a. Source: EIU Disclaimer This document is issued by Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. incorporated in the Netherlands, trading as Rabobank Nederland, and regulated by the FSA. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness. It is for information purposes only and should not be construed as an offer for sale or subscription of, or solicitation of an offer to buy or subscribe for any securities or derivatives. 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