2013-03-14 10:39:08 - New Country Reports market report from Business Monitor International: "Singapore Business Forecast Report Q2 2013"

Core Views

The recent uptick in expect demand is unlikely to mark the beginning of a forceful recovery, and given Singapore's dependence on export demand, we are forecasting for the economy to recover only slightly in 2013, to 2.5% growth.

2012-2013 appears to be an inflection point for Singapore's economy as it shifts away from the export-led growth that it experienced over the past decade. Although we expect the city-state to see a slight revival in its export fortunes in 2013 in line with a moderate growth rebound in Asia, we see import growth outrunning exports for the second straight year, marking the beginning of a longer-term trend.

Key Forecast Changes

Although Singapore's economy has thus far avoided a technical recession, it is not

yet out of the woods, with the threat of stagflation once again on the radar. As a result of slower-than-expected growth, due to poor demand for Singapore's particular mix of exports (especially its heavily IC-weighted electronics exports), we have downgraded our full-year 2013 GDP growth forecast to 2.5%, from a previous forecast of 3.6%.


Full Report Details at
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In December 2012, Singapore inflation broke its trend of moderation that it embarked on since September, rising back to 4.3%, due to stubborn housing and transportation costs. While we retain our end-2013 inflation target of 2.5%, we note that risks to this forecast remain to the upside, given that ongoing supply limitations in the aforementioned categories will keep prices elevated for a more extended period.

Key Risks To Outlook

Despite their continued health, a longer-than-expected downturn in global economic activity, or an acute financial or economic crisis stemming from either the eurozone or the US' potential fiscal cliff could erode the remaining strength in both the labour and asset markets in Singapore. In such a case, the very low unemployment rate of 1.9% could rise towards 2.5%, and private property prices could see a sharp correction.

With inflation stubbornly remaining above its long-term average, Singapore is once again in stagflationary territory. Headline inflation hit 4.3% in December 2012, up considerably from 3.6% in November. Although our forecasts do not indicate that inflation will outpace growth in 2013, we believe that risks of this phenomenon are growing.

Partial Table of Contents:

Executive Summary
Core Views
Key Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Alarm Bells Ringing For PAP, Following By-Election Rebuke
- Despite the fact that Singapore's January 26 2013 by-election involved only 31,649 registered voters, the massive vote swing from less than two years ago (+13.5 % for the Worker's Party (WP) and -10.8 % for the People's Action Party (PAP)), is cause for substantial concern for the PAP. Taken as a referendum of the PAP's attempts to adjust to voter sentiment following its relatively weak performance in 2011 general elections, the by-election result indicates that much of the public has yet to warm to the PAP's policy shift and suggests that the party may become slightly more aggressive ahead of 2016 general elections, in order to shore up its flagging support base.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Political Liberalisation Likely To Be Slow Over Next Decade
- Singapore faces very limited political risks in the near term, and we expect the ruling PAP to retain its monopoly on power. However, over the longer term, the city-state will come under greater pressure from its citizens to become a more vibrant democracy and foster credible opposition parties.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Export Recovery No Repeat Of 2010
- The Singaporean economy has underperformed since the beginning of 2012, suffering from subdued external demand for much of 2012 and failing to partake in the regional recovery as the year drew to a close. 2013 appears to have started on a brighter note, with the purchasing managers' index finally rising above 50 in January 2013. We do not expect to see a surge in export growth as was the case in 2010, and as such, we expect real GDP growth to remain lacklustre at 2.5% in 2013, versus consensus expectations of 3.0%.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
SG/HK Property: Justifiably Expensive
- Both Singapore and Hong Kong have enacted the harshest set of real estate cooling measures to date in an effort to keep a lid on skyrocketing property prices. While the measures will likely result in considerably lower property transaction volumes over the coming months, we do not believe that a substantial sell-off is nigh. Instead, the real trigger for a correction in the two markets is more likely to be the eventual normalisation of interest rates, which will stretch the affordability of mortgage payments and negate rental profits. However, we believe that both cities' property markets boast strong underlying fundamentals, which will continue to support price appreciation over the long term.
TABLE: MONETARY POLICY
Fiscal Policy
Budget Set To Arrive At Awkward Time
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Full Table of Contents is available at:
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