Recent Economic Developments in Singapore 01 Sep 2011

8/2/2019 Recent Economic Developments in Singapore 01 Sep 2011

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2010 2011

Q3 Q4FullYear

Q1 Q2

Real Sector

Real GDP Growth, y-o-y % 10.5 12.0 14.5 9.3 0.9

Real GDP Growth, q-o-q saar % -16.7 3.9 - 27.2 -6.5

Index of Industrial Production, y-o-y %

13.7 25.7 29.7 16.5 -5.8

Non-oil Domestic Exports, y-o-y %

23.7 17.6 22.8 12.3 1.9

Labour Market and Prices

Unemployment Rate, sa, % (Average) 2.1 2.2 2.2 1.9 2.1

CPI Inflation, y-o-y % 3.4 4.0 2.8 5.2 4.7

Wage Growth, y-o-y % 5.4 7.5 5.6 8.5 6.0

Highlights:

The Singapore economy saw a sequential decline in Q2 2011Domestic economic activity fell by 6.5% q-o-q saar (seasonally-adjusted annualisedrate) in the second quarter of this year. The contraction was led by a slowdown intrade-related activities, due to supply-chain disruptions from the Japan earthquakeand weaker demand from the advanced economies.

Global growth is expected to be subdued in the months ahead In H1 2011, economic growth slowed in the G3, and moderated in Asia ex-Japan.Activity in the US and Eurozone is likely to remain weak in the near term, weigheddown by fiscal consolidation and sovereign debt concerns.

Singapore’s GDP growth is forecast to come in between 5-6% in 2011 Economic activity in Singapore is likely to grow modestly in the second half of theyear. Growth will be supported by services which are driven largely by Asian demand.

However, downside risks in the external environment have heightened in recentweeks, including weaker growth prospects in the US and Europe.

Headline CPI inflation will remain elevated over the next few monthsCPI inflation is expected to come in at slightly over 5% in the next few months,boosted by accommodation and private road transport costs, before slowly trendingdown towards the end of the year. Excluding these items, MAS Core Inflation will belower, although it will still be firm due to the continued pass through of earliercommodity price hikes and wage increases.

01 Sep 2011Recent Economic Developments in Singapore

____________________________

Note: Labour market statistics were obtained from the Ministry of Manpower, while trade and index of industrial production (IIP) datawere provided by IE Singapore and the EDB respectively. All other data in this document were obtained from the Building andConstruction Authority, Department of Statistics, Ministry of Trade and Industry, unless otherwise stated.



2

A. Macroeconomic Overview

G3 growth falters in H1 2011

Economic growth in the G3 was weak in the first half of 2011, reflecting the impact

of transitory shocks such as higher oil prices and the Japanese earthquake.

Moreover, recent GDP data revisions in the US showed that economic conditions

were not as robust as previously thought – indeed, aggregate activity had stalled

since H2 2010. In the Eurozone, growth slowed dramatically in Q2 after a strong

outturn in the preceding quarter. Japan’s economic performance, however, came

in slightly better than expected in Q2, as industrial production rebounded after the

earthquake in March.

In the US, real GDP growth was revised sharply down to 0.4% in Q1 from 1.9%,

due to lower inventory investment and higher imports than previously estimated.

Growth picked up to 1.0% q-o-q saar in Q2, with gross fixed capital formation

providing significant support. In particular, business investments in machinery,

equipment and structures, grew by 9.9% q-o-q saar compared with 2.1% the

quarter before. Residential investment also saw a modest pick-up, although the

housing market still remains generally weak. In contrast, household consumption

growth virtually came to a standstill as American consumers cut back on their

purchases in the face of falling real incomes.

Growth in the Eurozone fell to

0.7% q-o-q saar in Q2 from 3.4% in

Q1. The lacklustre performance was

rooted in the weakness of the core

economies of France and Germany,

which posted growth of 0% and 0.5%

respectively. Both countries were

weighed down by a decline in private

consumption. Additionally, growth in

Germany was also affected by the

slowdown in the global trade cycle.

Activity in the G3 declined in H1 2011.

Source: Datastream

The Japanese economy shrank for the third consecutive quarter by

1.3% q-o-q saar, although the contraction was less severe than previously

expected. Net exports were adversely affected by the widespread supply chain

disruptions, shaving 3.1% points off overall growth. Private consumption held up

relatively better, with a smaller decline of 0.3% in Q2, compared to -2.5% in Q1.

In contrast, government investment increased by 12.5% q-o-q saar as post-quakereconstruction spending commenced.

2005 2006 2007 2008 2009 2010 2011

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-5

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10

Q O Q S A A R % G

r o w t h

Japan

Eurozone

Real GDP Growth

US

Q2



3

Despite soft economic conditions, inflation in the US and Eurozone rose further in

Q2 2011 as a result of higher energy and food prices. Headline CPI inflation in the

US increased to 3.4%, the highest since Q3 2008. Likewise, in the Eurozone,

inflation remained above the ECB’s target. In Japan, core consumer prices fell by a

smaller 0.93% in Q2, following a 1.4% decline in the previous quarter, asdeflationary pressures started to dissipate alongside the recovery from the

earthquake.

Regional economies: A deceleration in growth seen in Q2

Advance Q2 GDP releases for the Northeast Asian countries indicated a

moderation in economic activity. The ASEAN-4 economies however, turned in a

mixed performance, with Indonesia continuing to grow strongly in contrast with

slower expansions in the export-oriented economies.

Reflecting the significantly weaker external environment, growth in the

trade-dependent economies of Hong Kong, Korea, Malaysia, Taiwan and Thailand

moderated in Q2 2011. On a trade-weighted basis, the average growth of these

economies slowed to 4.2% from 5.4% in Q1, partly due to production cuts in Japan,

which affected their IT industries as a result.

In China, economic activity eased gradually in the first six months of this year, as

successive rounds of policy tightening took effect. Growth edged down to

9.5% y-o-y in Q2 2011, after easing to 9.7% in the previous quarter, amidst

continued efforts to rein in credit expansion. While industrial output continued to

grow at double-digit rates, growth moderated slightly in Q2 from the previous

quarter as firms ran down inventories. Nonetheless, retail sales accelerated slightly

in Q2 alongside robust wage increases, while fixed asset investment remained

buoyant. Similarly, GDP growth in India moderated to 7.7% in Q2 2011, following

the cumulative interest rate hikes of 250 basis points since early last year.

Meanwhile, price pressures have continued to intensify across Asia ex-Japan 1,

driven largely by higher food and commodity prices and tight labour markets.

Headline CPI inflation in the region rose to 5.7% in Q2 2011, from 5.4% in Q1.

Nonetheless, there are signs that the upward momentum has slowed and headline

rates are starting to stabilise in some countries, particularly Indonesia and Taiwan.

1 Asia here comprises China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.



4

Singapore economy: Activity slowed sharply in Q2

The Singapore economy contracted by 6.5%

q-o-q saar in Q2 2011.Following a 27.2% q-o-q saar

expansion in Q1 2011, economic

activity in Singapore took a sharp

step-down in Q2, contracting

6.5% q-o-q saar. Excluding the

pharmaceutical segment, economic

activity fell by 5.0%2. For H1 2011 as

a whole, domestic GDP growth

averaged 4.9% in y-o-y terms,

compared to 11.2% in H2 2010.

The decline was led by a slowdown in trade-related activities3 which were affected

by supply chain disruptions arising from the Japan earthquake as well as softer

global demand. Within the services cluster, the financial and business sectors

recorded mild declines. In comparison, tourism-related industries, such as hotels &

restaurants and retail, continued to register steady gains, supported by resilient

regional demand.

i) Manufacturing Sector

Manufacturing activity fell by

23.7% q-o-q saar in Q2 2011, following

a 97.2% surge in the preceding

quarter. The decline was broad-based,

with contractions in both the

electronics and non-electronics

clusters. Electronics output shrank by

43.4% q-o-q saar in Q2, as the

semiconductor and infocomms &

consumer electronics segments fell

sharply.

Activity in both the electronics and non-

electronics clusters faltered.

Activity in the non-electronics segment was dampened as well, with chemicals,

pharmaceuticals and general manufacturing recording double-digit sequential

declines. In contrast, the precision engineering cluster received a boost from the

marked expansion in machinery and equipment investments in Singapore in Q2.

2 EPG, MAS Estimates3 Trade-related activities here comprise manufacturing, wholesale and transport & storage sectors.

2005 2006 2007 2008 2009 2010 2011

-20

-10

0

10

20

30

40

50

0

-20

P e r C e n t

SAAR

YOY Growth

Real GDP

Q2

2005 2006 2007 2008 2009 2010 2011

50

75

100

125

150

175

200

I n d e x ( Q 1 2 0 0 5 = 1 0 0 ) , S A

Q2

IIP Electronics

IIP Non-electronics

Total IIP



5

ii) Construction Sector

The construction sector expanded by

13.4% q-o-q saar in Q2. Gains were

supported by the public non-residential

segment, notably from industrialdevelopments such as JTC

Corporation's Liquefied Natural Gas

(LNG) Terminal and ongoing projects

at the Seletar Aerospace Park.

Meanwhile, growth in public and

private residential construction

moderated slightly.

Construction activity saw sequential growth in

Q2 2011.

Source: EPG, MAS Estimates

iii) Services SectorFollowing the 10.1% increase in the preceding quarter, activity in the services

sector plateaued (-0.2%) in Q2 2011. Alongside the sharp decline in the domestic

manufacturing industry, some of the supporting trade-related services also faltered.

In particular, the weak showing in the wholesale segment reflected in part the

decline in electronics re-exports to Europe. Meanwhile, the

tourism-related services sector continued to expand in Q2 2011 amidst continued

resilience in the region. The regional market4 accounted for more than 70% of

visitor arrivals into Singapore. As a result, average room rates trended upwards

and hotel occupancy rates rose from 86% in Q1 to 87% in Q2.

The financial services sector saw a mild contraction of 0.2% q-o-q saar in Q2 2011.

Heightened uncertainty surrounding the Eurozone and US debt-related problems

weighed on the sentiment-driven industries. For instance, stock market average

daily turnover volumes dropped sharply by 24% q-o-q, extending the 7.7% decline

in the quarter before. In contrast, lending activities remained resilient. Domestic

non-bank lending expanded for the ninth sequential quarter, bolstered by an

increase in business loans. Consumer lending also stayed firm, supported by a

pipeline of mortgage-related loans. In the offshore segment, gains in lending to theregion helped offset the fall in loans extended to Europe.

4 The regional market here comprises ASEAN, China, Hong Kong, India, Japan, Korea and Taiwan.

2005 2006 2007 2008 2009 2010 201150

100

150

200

250

300

350

100 I n d e x ( Q 1 2 0 0 5 = 1 0 0 ) ,

S A

Residential CertifiedPayments

Non-residentialCertified Payments

Civil EngineeringCertified Payments

Q2



6

B. Labour Market

Modest employment gains in Q2 2011

Preliminary estimates showed that overall employment gains moderated to 22,800in Q2 2011, from 28,300 in the preceding quarter. In particular, hiring in services

eased by almost a third to 18,800 as most segments added fewer workers in Q2.

In comparison, the manufacturing and construction sectors saw a slight pick-up in

hiring. Manufacturing expanded employment by 1,300, led by the non-electronics

industries while construction added 2,600 jobs due to the ramp-up in public sector

projects.

Reflecting the slower expansion in employment, the seasonally-adjusted overall

unemployment rate edged up from 1.9% in March 2011 to 2.1% in June. Similarly,the resident unemployment rate rose from 2.7% to 3.0% over the same period.

As a result, overall resident wage growth eased from 8.5% y-o-y in Q1 2011 to

6.0% in Q2.

According to the latest Business

Expectations Survey, the employment

outlook has softened somewhat in

industries such as transport & storage,

financial services, business servicesand manufacturing. However,

wholesale & retail trade,

accommodation & food services and

recreation, community & personnel

services have reported stronger hiring

expectations. Notwithstanding the

divergence in employment prospects

across the various sectors, overall

employment is still expected to grow ata firm pace over the next few months.

The pace of hiring slowed in Q2 2011.

2005 2006 2007 2008 2009 2010 2011

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0

20

40

60

80

0

-20

C h a n g e s i n E m p l o y m e n t ( ' 0 0 0 )

1.6

2.0

2.4

2.8

3.2

3.6

P e

r C e n t , S A

Goods Industry (LHS)

Services Industry (LHS)

Unemployment Rate (RHS)

Q2



7

C. Inflation

CPI inflation eased in Q2 2011, but is expected to remain above 5% for the

coming months

Headline CPI inflation eased from 5.2% y-o-y in Q1 2011 to 4.7% in Q2 2011,

reflecting the effects of a high base a year ago when car prices surged. In contrast,

MAS Core Inflation, which excludes the costs of accommodation and private road

transport, rose from 1.9% in Q1 to 2.2% in Q2 on account of the tight domestic

labour market, firm consumer spending and elevated global commodity prices.

In July, CPI inflation rose to 5.4%,

mainly due to the increase in

accommodation costs, as old tenancycontracts are reset at the current higher

rental rates, as well as a sharp rise in

COE premiums. MAS Core Inflation

remained stable at 2.2% as the upward

adjustment in electricity tariffs in Q3 was

offset by the moderation in services

inflation.

CPI inflation rose to 5.4% in July.

CPI Inflation is expected to remain elevated at slightly over 5% in the next fewmonths, on account of continued strong increases in accommodation costs, before

slowly trending down towards the end of the year. The high COE premiums imply

that car prices will also remain a significant contributor to CPI inflation for the rest of

the year. In comparison, MAS Core Inflation will be lower, although it will remain

firm due to the continued pass through of earlier commodity price hikes and wage

increases. For the whole of 2011, CPI inflation is expected to average between 4%

and 5%, of which almost two-thirds will be accounted for by accommodation and

private road transport costs. Excluding these two items, the MAS Core Inflation is

projected to be 2-3%.

2007 2008 2009 2010 2011-2

-1

0

1

2

3

4

5

6

7

8

0

Y O Y % G

r o w t h

MAS CoreInflation

Overall CPIInflation

Jul



8

D. Balance of Payments

The surplus in the overall balance of payments moderated in Q2 2011

The overall balance of payments surplus moderated to $5.5 billion in Q2 2011, from$6.2 billion in the preceding quarter. This reflected a narrowing of the current

account surplus, even as the net outflow in the capital and financial account

declined.

Gross capital inflows increased from

$39 billion in Q1 to $46 billion in Q2.

These inflows have been volatile, but at

an average of $31 billion (40% of GDP)

per quarter since Q1 2010, they wereslightly below the average of $37 billion

(59% of GDP) per quarter in the

previous period of sharp inflows from Q1

2006 to Q1 2008. The inflows in the

latest quarter were driven by direct and

‘other’ investments, while portfolio

investment continued to be negative,

indicating that foreigners’ sales of local

securities exceeded their purchases.

The overall balance of payments surplus

moderated to $5.5 billion in Q2.

‘Other investment’ gross inflows comprise both bank and non-bank private sector

flows. The former accounted for the bulk of the increase in Q2, largely reflecting

DBU borrowings from the ACU.

The increase in gross capital inflows in Q2 was

driven by direct and other investments.While gross inflows to Singapore are

large, there have also been sizable

gross outflows from the financial

system, given our role as aninternational financial centre as well as

the large presence of companies here

with international operations. In fact,

Singapore is typically in a net capital

outflow position.

2005 2006 2007 2008 2009 2010 2011

-30

-20

-10

0

10

20

30

0

-30

S $ B i l l i o n

Capital & Financial Account

Current Account

Overall Balance

Q2

2005 2006 2007 2008 2009 2010 2011

-20

0

20

40

60

0

-20

S $ B i l l i o n

Direct Investment Portfolio Investment Other Investment

Q2



9

Gross capital outflows rose to $53 billion in Q2 from $50 billion in the preceding

quarter, and exceeded gross inflows by $6.5 billion. There was a significant gross

outflow of ‘other investment’ from the domestic banking sector, mainly arising from

increased loans to non-bank non-residents.

Overall, net outflow in the financial account narrowed to $6.5 billion in Q2 from $11

billion in Q1, driven by a decline in net outflow of ‘other investment’. In comparison,

net portfolio investment outflows rose slightly, while net inflow of direct investment

to Singapore fell, reflecting a larger reduction in gross foreign investment here than

in outward investment by residents.

The current account surplus narrowed

to $14 billion in Q2 2011 from $17

billion in the previous quarter. Therewas a fall in the goods surplus as

imports rose more than exports amidst

a softening of external demand

conditions. The services surplus also

declined, reflecting a fall in

transportation and other business

services net receipts and an increase

in net payments for travel services.

Meanwhile, the income balancerecorded a lower deficit, as the

increase in income receipts exceeded

that of payments.

On a net basis, the financial account recorded

an outflow of $6.5 billion.

2005 2006 2007 2008 2009 2010 2011

-30

-20

-10

0

10

20

0

-30

S $ B i l l i o n

Direct Investment

Portfolio Investment

Other Investment

Financial Account

Q2



10

E. Outlook

G3 economies: A slowdown in growth momentum is expected

Within the G3 economies, growth in the US and the Eurozone is likely to be

subdued in the near term, weighed down by fiscal consolidation and sovereign debt

concerns. In Japan, growth should rebound in H2 2011 due to the ongoing

restoration of supply chains, and post-quake reconstruction efforts.

Expectations of US growth in the coming quarters have been scaled down

significantly. The ISM manufacturing PMI fell to 50.9 in July, with the

non-manufacturing index coming in slightly stronger at 52.7. These readings are

consistent with below-potential output growth over the next few quarters. At the

same time, consumers have become less optimistic – the latest reading from the

University of Michigan Consumer Sentiment Index fell to 55.7 in August from 63.7

in July. The downturn reflected the impact from events such as the protracted fiscal

debt ceiling debate and S&P’s downgrade of US long-term debt. While the labour

market has started to show modest signs of improvement, this is unlikely to

translate to a strong recovery in the short term. Latest consensus forecasts

suggest that the US economy will grow by only 1.8% in 2011 and 2.4% in 2012,

lower than the 2.5% and 3.0% expected a month ago respectively.

Across the Atlantic, growth momentum in the Eurozone is expected to remain weak

after the sharp slowdown in Q2 2011. Concerns over sovereign debt issues have

intensified over the past few months, with the threat of contagion spreading from

Greece, Ireland and Portugal to the more systemically important economies of Italy

and Spain. At a landmark EU Summit in July 2011, European leaders agreed on a

second bailout for Greece worth €109 billion, which included a debt exchange deal

that reduced the net present value of Greece’s debt by an estimated 21%.

However, uncertainty remains over Greece’s fiscal sustainability, and whether the

Eurozone’s bailout fund, the European Financial Stability Facility (EFSF), will be

sufficient should contagion spread to Italy and Spain. Combined with ongoing fiscal

austerity, overall growth in the Eurozone is expected to come in at 1.9% in 2011,

according to consensus forecasts.

In Japan, signs have emerged that the economy is recovering from three quarters

of negative growth. Following sharp declines in March, several economic indicators

have shown increases in April–May. Industrial output recovered in April and

increased thereafter while real exports also rebounded in May. Private

consumption began to pick up in April, along with an improvement in the services

sector.



11

Reconstruction efforts will boost growth in H2 while manufacturing production is

likely to reach pre-quake levels in the next few months, as indicated by the latest

PMI reading which climbed to 52.1 in July from 50.7 in June. Nevertheless, a

number of headwinds persist: power shortages may not have ended as more

nuclear plants are shut down for maintenance, while the slowing global economycould hold back the pace of Japan’s export recovery.

Table 1: Consensus Forecasts of GDP Growth

2010Forecast

2011 2012

PercentIndustrialUS 3.0 1.8 2.4Japan 4.0 -0.7 3.1

Eurozone 1.7 1.9 1.5UK 1.4 1.3 2.0NIEHong Kong 7.0 5.7 5.0Korea 6.2 4.2 4.4Taiwan 10.9 4.9 4.8

ASEANIndonesia 6.1 6.4 6.4Malaysia 7.2 5.0 5.4Thailand 7.8 4.1 4.8Philippines 7.6 4.9 5.2

China 10.3 9.2 8.8India * 8.9 7.7 8.1

Source: CEIC and Consensus Economics, Aug 2011* Fiscal year starting 1 April for 2011 and 2012 forecasts.

Regional economies: Growth will be dampened by a softening in externaldemand

The regional economies are likely to be constrained by weaker external demand in

the second half of 2011 while increased uncertainty over the short-term prospects

for the global economy will weigh on sentiment more generally. The impact of

previous policy tightening measures in some countries will also restrain domesticdemand growth.

After expanding by 9.6% in the first half of this year, China’s growth is poised to

moderate in the immediate quarters ahead. Reflecting some slackening in the

industrial sector, China’s manufacturing PMI dipped to 50.7 in July 2011, its lowest

level since February 2009. Consumer spending and private investment, which

have posted healthy growth thus far, could ease in H2 2011 on tighter domestic

credit conditions. Nonetheless, GDP growth is still expected to exceed 9% this

year, after an expansion of 10.3% in 2010.



12

The slowdown in the developed countries and China would affect the NIE and

ASEAN economies adversely, especially the more export-oriented ones such as

Korea, Malaysia and Taiwan. Indeed, some signs of a slowdown have already

emerged, with electronics exports easing significantly in recent months.

The subdued external growth outlook would also impact consumer and businessconfidence negatively, which would in turn dampen household and investment

spending. In the near term, however, the regional economies should see some

pickup in activity, buoyed by reconstruction demand from Japan.

On the inflation front, the recent stabilisation in global food prices, and

strengthening of regional currencies have helped to cap increases in headline

inflation. In China, inflation is likely to have peaked in Q2, as weather-related food

supply shocks appear to have faded. In India and Korea, however, core CPI

remained elevated as a result of rising wage costs and high commodity prices.With growth softening in some regional economies, underlying cost pressures

should be fairly contained.

In the US and Eurozone, capacity utilisation rates have remained below

pre-crisis levels. Inflationary pressures may subside given the uncertain growth

outlook and the easing of global oil and commodity prices. In Japan, while

aggregate demand has been recovering gradually, it has yet to reach pre-quake

levels. Thus, price pressures will remain muted.

IT outlook: Global demand will remain lacklustre amidst headwinds fromindustrialised economies

The global IT outlook has weakened in recent months, alongside growing concerns

about the macroeconomic environment. Following strong gains in Q1, global chip

sales contracted for three consecutive months in the second quarter on

broad-based declines across the Americas, Europe and Asia. The moderation in

activity was corroborated further upstream in the capital equipment segment as

well. Based on SEMI statistics, the US chip equipment industry’s book-to-bill ratiohas fallen continuously over the past four months, down from 0.98 in April to 0.86 in

July, reflecting manufacturers’ eroding confidence in global IT demand prospects.



13

Broad-based declines in global chip sales were

seen in Q2.

Source: Semiconductor Industry Association and EPG, MAS

estimates

Global semiconductor inventories have risen to

near pre-recession levels.

Source: IHS iSuppli

Semiconductor inventories rose steadily to near pre-recession levels in Q2, as

major industry players built up their stockpiles in the aftermath of the Japanearthquake on supply-side disruption fears. In the latter half of Q2, with global

demand slowing alongside weaker-than-expected US economic data and fresh

Eurozone sovereign debt concerns, businesses were unable to clear inventories,

which subsequently remained at high levels. Production in Q3 will likely be

dampened as firms work through their excess inventories amidst a retraction in final

demand. Reflecting the weakening industry dynamics, average selling prices for

memory chips in the DRAM market have declined significantly, falling by 20% in

July, compared to April.

Final demand for IT products in the advanced economies have already registered

sequential declines. Demand from emerging markets also softened as well, with

retail and corporate sales in China recording modest gains in Q2. Notwithstanding

product launches from the smartphone and tablet segments in the coming months,

recent indicators point to restrained global spending, which could cap gains in the

IT sector. Overall, activity in the global IT sector is expected to remain subdued in

the next two quarters.

2009 Q2 Q3 Q4 2010 Q2 Q3 Q4 2011 Q2

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15

20

Q O Q S A % G r

o w t h

2009 Q3 2010 Q3 201160

65

70

75

80

85

D a y s o f I n v e n t

o r y

Q2



14

Domestic Outlook: Economy expected to expand by 5 to 6% in 2011

Mirroring the heightened uncertainty in the external environment, activity in the

Singapore economy slowed considerably in Q2, following the surge in Q1.

Activity in the global IT industry also faltered, leading to a weak showing in thedomestic manufacturing and trade-related sectors.

Going into the third quarter of 2011, the recent spate of negative events, including

the historic downgrade of US sovereign credit and European debt woes, has

caused fresh jitters in global financial markets. Weak growth prospects in the

developed economies, concerns about fiscal sustainability in the Eurozone

and inflationary pressures in the region continue to cloud the near-term outlook.

Singapore’s economic performance in the second half of the year will be capped by

these external developments. In particular, the trade-related sectors, whichaccount for almost half of Singapore’s GDP, will be most vulnerable to further

weakness. However, resilient Asian demand should partially offset these

headwinds from the industrialised countries in the next two quarters.

At this stage, Singapore’s GDP growth is forecast to come in at 5-6% for the year

as a whole, with a modest increase in economic activity in H2, compared to the first

half of the year. Growth will be supported by services which are driven largely by

Asian demand, such as in the tourism industry, even as activity in the

manufacturing and trade-related sectors remains sluggish. While global marketvolatility will weigh on the sentiment-sensitive industries, the financial sector should

see firm growth for the rest of 2011, anchored by domestic lending activities.

If incoming external indicators take a significant turn for the worse, overall activity in

the Singapore economy will slow further.



15

F. Macroeconomic Policies

A further tightening in policy stance to ensure price stability over the medium

term

i) Monetary Policy

Following the rapid and broad-based

economic expansion in Q1 2011, there

was a pullback in domestic economic

activity in Q2. While the immediate

outlook has been clouded by

uncertainty stemming from the series

of negative shocks to the globaleconomy, resilient regional demand

and steady recovery in the advanced

economies will continue to drive

Singapore’s growth and sustain its

economic activity at a high level.

Meanwhile, inflationary pressures

remain strong given the high rates of

resource utilisation in the economy.

Specifically, the tight labour marketcould result in stronger wage growth

and a greater degree of pass-through

to services costs, and eventually

higher CPI inflation.

In April 2011, MAS re-centred the policy band

upwards. The policy band was re-centred below

the prevailing level of the S$NEER, with no

change to its slope or width.

Given these upside risks to inflation, MAS re-centred the S$NEER policy band

upwards in April 2011. The policy band was re-centred below the prevailing level of

the S$NEER, with no change to its slope or width. MAS’ latest move took into

account the impact of the pre-emptive tightening moves in April and October 2010,which would continue to have a restraining effect on economic activity and prices

over the rest of this year.

ii) Fiscal Policy

The Singapore economy registered record GDP growth of 14.5% in 2010. As such,

the key measures of the “Resilience Package”, put in place in 2009 to help

businesses and households tide over the economic downturn, have been fully

phased out as of January this year. The overall budget deficit for FY2010 came inat $0.3 billion (0.1% of GDP), significantly lower than the $3.0 billion projected in

Oct Jan Apr Jul Oct Jan Apr

98

100

102

104

106

108

I n d e x ( 2 O c t 2

0 0 9 = 1 0 0 )

indicates release of Monetary Policy Statement

Appreciation

Depreciation

2009 2010 2011



16

2010, on the back of higher revenues from the better-than-expected performance of

the economy.

Budget 2011, announced on 18 February, builds on the medium-term policy

agenda initiated by Budget 2010, with additional initiatives aimed at restructuringthe Singapore economy in order to enhance productivity over the medium to long

term. These measures represent continued steps towards implementing the

recommendations charted out by the Economic Strategies Committee (ESC) to

support the economy's growth in the next phase of its development. They can be

broadly divided into three categories: first, the government has committed $2.1

billion this year in the form of tax benefits, grants and training subsidies to help

companies and workers to innovate and deepen their skills and expertise. Second,

measures to enable companies to develop growth capabilities, commercialise their

R&D and expand abroad were enhanced. Third, the government introducedinitiatives to improve the softer aspects of the quality of life in Singapore and make

growth more inclusive. These measures have been especially geared towards

lower-skilled workers, the elderly as well as the lower-to-middle income households.

At the same time, Budget 2011 also contained one-off, targeted measures to assist

firms facing rising business costs and to help households preserve purchasing

power amidst higher inflation. These include rebates on income taxes, service and

conservancy charges, and utility bills.

For FY2011, the government is expecting the budget balance as a percentage ofGDP to be close to zero, with a small overall budget surplus amounting to around

$0.1 billion.

Summary of Fiscal Position

FY 2009 FY 2010 Revised FY 2011 Budgeted

$billion % of GDP $billion % of GDP $billion % of GDP

Operating Revenue 39.5 14.2 45.5 14.5 48.1 14.2

Total Expenditure 41.9 15.1 46.4 14.8 47.1 13.9

Operating

Expenditure 30.9 11.1 34.1 10.9 35.9 10.6

DevelopmentExpenditure

11.0 4.0 12.3 3.9 11.2 3.3

PrimarySurplus/Deficit (-)

-2.3 -0.8 -0.9 -0.3 1.0 0.3

Add: NII/NIRContribution

7.0 2.5 7.8 2.5 7.8 2.3

Less: SpecialTransfers

5.5 2.0 7.2 2.3 8.7 2.6

BudgetSurplus/Deficit (-)

-0.8 -0.3 -0.3 -0.1 0.1 0.0

Note: Figures may not tally due to rounding.Source: Ministry of Finance.



17

Selected Indicators

Land Area (Sq km) 712.4 Literacy Rate* (%) 95.9

Total Population ('000) 5,076.7 Real Per Capita GDP (US$) 41,109

Labour Force ('000) 3,135.9 Gross National Savings (% of GNI) 47.8

Res ident Labour Force Participation Rate (%) 66.2

* Refers to resident population aged 15 years and over.

COMPONENTS OF NOMINAL GDP

SECTORAL (% of GDP), 2010

COMPONENTS OF NOMINAL GDP

EXPENDITURE (% of GDP), 2010

Manufacturing 22.2 Private Consumption 37.9

Financial Services 11.9 Public Consumption 10.7

Business Services 14.0 Private Gross Fixed Capital Formation 21.0

Construction 4.5 Public Gross Fixed Capital Formation 4.0

Transport & Storage 8.6 Increase in Stocks -1.2

Information & Communications 3.6 Net Exports of Goods & Services 28.1

Wholesale & Retail Trade 16.5 Statistical Discrepancy -0.5

Hotels & Restaurants 2.2

MAJOR EXPORT DESTINATIONS

(% SHARE), 2010

MAJOR ORIGINS OF IMPORTS

(% SHARE), 2010

Total Exports (S$ Billion) 478.8 Total Imports (S$ Billion) 423.2

Malaysia 11.9 Malaysia 11.7

Hong Kong 11.7 US 11.2

China 10.3 China 10.8

Indonesia 9.4 Japan 7.9

USA 6.4 Indonesia 5.4

ASEAN 30.3 ASEAN 24.0

NIEs 19.4 EU 12.3

EU 9.8 NIEs 12.7

Source: IE Singapore

MAJOR DOMESTIC EXPORTS

BY COMMODITY (% SHARE), 2010

MAJOR IMPORTS

BY COMMODITY (% SHARE), 2010

Domestic Exports (S$ Billion) 248.6 Total Imports (S$ Billion) 423.2

Mineral Fuels 30.2 Electronics 29.1

Electronics 26.1 Mineral Fuels 27.3

Chemicals 17.5 Machinery & Transport Equipment (ex. Electronics) 17.4

Machinery & Transport Equipment (ex. Electronics) 12.0 Manufactured Articles 7.0

Manufactured Articles 7.7 Chemicals 6.8

Manufactured Goods 2.8 Manufactured Goods 6.3

Source: IE Singapore

GENERAL INDICATORS, 2010



18

OVERALL ECONOMY 2009 2010 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Jun-11 Jul-11

GDP at current prices (S$ bil) 266.7 303.7 62.1 64.5 68.3 71.8 73.0 76.0 76.4 78.2 81.9 79.2 na na

GDP (US$ bil) 183.3 222.7 41.1 43.8 47.5 51.5 52.0 54.7 56.3 60.0 64.1 63.9 na na

Real GDP Growth (YOY % change) -0.8 14.5 -8.4 -1.3 2.1 4.6 16.4 19.4 10.5 12.0 9.3 0.9 na na

Real GDP Growth (QOQ SAAR % change) na na -8.9 18.6 13.3 -1.5 39.9 29.7 -16.7 3.9 27.2 -6.5 na na

By Sector (YOY % change):

Manufacturing 1/ -4.2 29.7 -23.8 -0.5 7.5 2.4 37.2 45.2 13.7 25.5 16.5 -5.9 10.7 7.4

Electronics / -8.5 35.7 -36.6 -19.4 -1.2 28.0 66.4 52.8 26.1 14.7 12.1 -7.7 -15.3 -18.2

Non-electronics / -2.2 27.2 -18.4 8.3 11.8 -8.0 27.6 42.6 8.3 31.9 18.4 -5.0 23.5 19.6

Financial Services 4.3 12.2 -4.0 3.0 6.3 12.2 18.9 9.9 9.7 10.9 11.4 10.0 na na

Business Services 4.3 5.9 5.7 3.6 3.5 4.4 6.1 7.1 6.0 4.5 4.4 2.2 na na

Construction 17.1 6.1 25.1 18.5 11.4 14.9 9.7 11.4 6.7 -2.0 2.4 1.5 na na

Transport & Storage -9.0 6.0 -12.0 -11.9 -10.1 -1.6 6.6 8.5 5.2 3.8 4.9 4.1 na na

Information & Communications 1.0 2.9 1.6 1.0 0.8 0.7 2.2 2.9 3.4 2.9 3.3 2.4 na na

Wholesale & Retail Trade -6.0 15.1 -12.0 -9.6 -5.2 3.5 16.9 18.9 14.4 10.8 5.0 0.0 na na

Hotels & Restaurants -1.6 8.8 -4.2 -4.2 -0.1 2.1 7.2 12.5 8.2 7.5 7.2 6.4 na na

By Expenditure Component (YOY % change):

Consumption 0.9 5.7 -3.3 -0.9 3.4 4.9 7.7 5.6 3.7 5.8 3.6 6.4 na na

Private 0.2 4.2 -2.8 -2.9 2.3 4.4 6.1 5.2 1.5 4.3 6.1 6.6 na na

Public 3.5 11.0 -4.6 10.2 7.7 6.6 12.0 7.6 11.8 11.3 -2.6 5.4 na na

Gross Fixed Capital Formation -2.9 5.1 -12.3 -5.3 0.2 7.3 11.1 -1.7 5.8 5.7 -7.8 10.0 na na

Private -5.6 3.5 -16.4 -7.8 -1.5 5.2 9.6 -4.6 4.0 5.8 -12.4 9.4 na na

Public 18.5 15.0 21.0 18.8 12.8 21.1 19.4 19.7 17.2 5.2 15.8 13.1 na na

External Demand -8.1 19.2 -18.0 -13.3 -7.7 7.9 21.7 24.4 19.8 12.1 8.4 1.8 na na

TRADE

Total Exports, fob (YOY % change) -18.0 22.4 -27.8 -25.4 -20.0 4.9 28.2 29.1 20.0 14.5 13.4 6.7 6.0 3.2Non-Oil Domestic Exports -10.6 22.8 -25.6 -14.5 -7.8 8.2 23.1 27.6 23.7 17.6 12.3 1.9 1.0 -2.8

Re-Exports -16.6 20.5 -24.1 -23.8 -17.9 1.9 24.5 24.6 20.9 13.0 7.2 2.6 -0.3 -7.4

Total Imports, cif (YOY % change) -21.0 18.8 -27.6 -28.4 -22.8 -2.7 25.5 26.4 15.6 9.7 10.2 8.4 3.7 -3.8

WAGE-PRICE INDICATORS

Unemployment Rate (SA,%) 3.0 2.2 3.2 3.2 3.3 2.3 2.2 2.2 2.1 2.2 1.9 2.1 na na

Average Nominal Wages (S$ per month) 3,872 4,089 4,155 3,609 3,562 4,160 4,310 3,819 3,754 4,474 4,677 4,048 na na

Consumer Price Index Inflation (YOY % change) 0.6 2.8 3.4 0.2 -0.3 -0.8 0.9 3.1 3.4 4.0 5.2 4.7 5.2 5.4

MAS Core Inflation (YOY % change) 0.0 1.5 2.2 0.0 -0.7 -1.4 0.1 1.7 2.2 2.1 1.9 2.2 2.3 2.2

FINANCIAL INDICATORS3/

S$ Exchange Rate Against: (end-period)

US Dollar 1.4034 1.2875 1.5194 1.4498 1.4141 1.4034 1.4028 1.4013 1.3175 1.2875 1.2617 1.2292 1.2292 1.2041

100 Japanese Yen 1.5194 1.5798 1.5450 1.5115 1.5752 1.5194 1.5016 1.5822 1.5760 1.5798 1.5248 1.5284 1.5284 1.5528

Euro 2.0163 1.7120 2.0153 2.0464 2.0674 2.0163 1.8789 1.7113 1.7919 1.7120 1.7828 1.7838 1.7838 1.7272

Interest Rates (end-period, % p.a.)

3-month Fixed Deposit Rate 0.25 0.19 0.32 0.27 0.26 0.25 0.22 0.21 0.20 0.19 0.18 0.18 0.18 0.18

3-month Domestic Interbank Rate 0.69 0.44 0.69 0.69 0.69 0.69 0.69 0.56 0.50 0.44 0.44 0.44 0.44 0.44

Prime Lending Rate 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38 5.38

Money Supply (end-period)

Broad Money, M2 (YOY % change) 11.3 8.6 11.5 12.9 11.3 11.3 8.8 7.3 8.2 8.6 8.7 10.7 10.7 11.9

Straits Times Index (end-period) 2,897.6 3,190.0 1,700.0 2,333.1 2,672.6 2,897.6 2,887.5 2,835.5 3,097.6 3,190.0 3,105.9 3,120.4 3,120.4 3,189.3

YOY % change 64.5 10.1 -43.5 -20.8 13.3 64.5 69.9 21.5 15.9 10.1 7.6 10.0 10.0 6.7

GOVERNMENT BUDGET4/

Operating Revenue (S$ mil) 37,872 44,581 8,756 10,000 10,621 8,495 10,430 11,912 12,395 9,845 11,909 13,572 na na

Total Expenditure (S$ mil) 40,483 44,049 13,073 7,874 9,177 10,359 14,509 7,888 10,360 11,293 15,798 8,593 na na

Operating Expenditure 29,871 32,755 10,395 5,269 6,695 7,512 11,433 5,346 7,328 8,648 11,948 6,483 na na

Development Expenditure 10,612 11,295 2,678 2,604 2,482 2,847 3,077 2,542 3,032 2,644 3,850 2,111 na na

Primary Surplus/Deficit (S$ mil) -2,611 532 -4,317 2,126 1,444 -1,864 -4,079 4,024 2,035 -1,447 -3,889 4,979 na na

% of GDP -1.0 0.2 -7.0 3.3 2.1 -2.6 -5.6 5.3 2.7 -1.9 -4.7 6.3 na na

BALANCE OF PAYMENTS

Current Account Balance (% of GDP) 19.0 22.2 18.5 18.4 17.3 21.7 20.8 22.9 25.0 20.1 21.1 18.2 na na

Goods Balance 15.9 20.9 12.2 16.0 16.9 18.2 16.9 22.0 24.1 20.6 20.5 18.4 na naServices Balance 7.7 7.1 6.3 6.6 7.3 10.3 7.8 6.9 7.3 6.5 6.6 5.9 na na

Income Balance -2.4 -3.7 2.5 -2.0 -4.8 -4.7 -1.9 -3.9 -4.2 -4.8 -3.7 -3.8 na na

Current Transfers -2.2 -2.2 -2.4 -2.2 -2.1 -2.1 -2.1 -2.1 -2.2 -2.2 -2.2 -2.3 na na

Capital & Fin Account Balance (% of GDP) -14.6 -3.1 -28.0 -19.1 -7.8 -5.6 6.2 -2.9 -17.4 1.9 -13.7 -8.3 na na

Financial Account Balance (% of GDP) -14.5 -3.0 -27.8 -18.9 -7.6 -5.5 6.3 -2.7 -17.2 2.0 -13.6 -8.2 na na

Direct Investment -1.7 8.5 -5.8 -0.6 -2.2 1.2 2.5 10.7 9.5 10.9 16.3 8.3 na na

Portfolio Investment -8.5 -9.8 -13.7 -8.5 -12.0 -0.6 -13.5 -5.8 -8.9 -11.2 -11.4 -12.2 na na

Other Investment -4.3 -1.6 -8.4 -9.7 6.5 -6.1 17.3 -7.6 -17.8 2.3 -18.5 -4.2 na na

Overall Balance (% of GDP) 6.2 18.9 -5.8 1.6 10.3 16.7 28.8 18.0 8.2 21.1 7.6 6.9 na na

Official Foreign Reserves (US$ mil) 5/ 187,809 225, 754 166, 251 173, 191 182, 039 187,809 197,112 199, 960 214, 662 225,754 234, 205 242, 287 242, 287 249,150

Months of Imports 9.2 8.7 6.8 7.8 9.0 9.2 8.9 8.5 8.6 8.7 8.6 8.5 8.5 8.7

Source:1/ Monthly data from Index of Industrial Production, EDB / Data from Index of Industrial Production, EDB3/ Straits Times In dex from SGX. All other indicators fro m MAS.4/ Ministry of Finance5/ MAS

na: Not available

Documents

Recent Economic Developments in Singapore 01 Sep 2011