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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
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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
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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
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April 2012
Rabobank
Economic Research Department
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