Singapore Economy Summary Report Second Quarter 2014 Contents Page A. Recent Economic Developments 2 B. Business Sentiments for Jul 2014 to Dec 2014 5 C. Review of 2Q 2014 Trade Performance 6 D. Economic Outlook for Remaining 2014 8 E. Appendices (News articles for reference only) 10
SINGAPORE ECONOMY SUMMARY REPORT (SECOND QUARTER 2014) A. RECENT ECONOMIC DEVELOPMENTS According to the Ministry of Trade and Industry (MTI) in Singapore, Singapore s economy expanded by a faster-than-expected 2.4 per cent in the second quarter of this year from a year ago. o After seasonal adjustments, GDP grew an annualized 0.1 per cent quarter-on-quarter in Q2. This was still a slowdown from the 1.8 per cent quarter-on-quarter growth in Q1, which was revised up from an earlier reported 1.6 per cent. Dragged down by a contraction in electronics output and slower growth in transport engineering production, the manufacturing sector grew 1.5 per cent year-on-year in Q2 a sharp slowdown from the 9.9 per cent expansion in Q1. Growth in the services sector also moderated to 2.6 per cent from 3.9 per cent in Q1, amid a broad-based slowdown in the industry. MTI commented that in the second half of 2014, in tandem with the modest pick-up in the global economy, externally oriented sectors such as finance & insurance and wholesale trade are likely to support growth. o Domestically oriented sectors, including business services and information & communications, are expected to remain resilient in the second half of 2014. Page 2 of 12
o Growth in labor-intensive segments such as retail trade and food services may be weighed down by labor constraints. MTI also revealed that labor productivity saw a 1.3 per cent decline in the second quarter following the first quarter s 0.7 per cent growth, weighed down by the productivity contraction in domestic sectors such as accommodation, construction and food services. During the 2014 National Day Message, Prime Minister Lee Hsien Loong also announced that Singapore grew 3.5 per cent year on year for the first half of 2014. o Prime Minister Lee had also narrowed Singapore's full-year growth forecast to 2.5 to 3.5 per cent, from an earlier range of 2.0 to 4.0 per cent. A.1 MANUFACTURING On a year-on-year basis, the manufacturing sector grew by 1.5 per cent in the second quarter, a sharp slowdown from the 9.9 per cent expansion in the preceding quarter. o The deceleration in growth was largely due to a contraction in electronics output and slower growth in transport engineering output. Singapore's semiconductor sector took a hit in April when an electronics factory shifted its production offshore. As a whole, manufacturing posted its worst quarterly performance in three years. o On a quarter-on-quarter seasonally-adjusted annualized basis, the sector contracted at an annualized rate of 15.2 per cent, a reversal from the 12.3 per cent growth in the previous quarter. A.2 CONSTRUCTION The construction sector grew at a slower pace of 4.4 per cent year-on-year in the second quarter, compared to the 6.4 per cent growth in the preceding quarter. Page 3 of 12
o The slowdown was driven mainly by a fall in private construction output, reflecting weaker private residential building works and a decline in private commercial and industrial building works. On a quarter-on-quarter seasonally-adjusted annualized basis, the sector grew by 0.3 per cent, a marginal improvement from the 0.5 per cent contraction in the first quarter. A.3 WHOLESALE & RETAIL TRADE In the second quarter, the wholesale & retail trade sector grew by 1.7 per cent year-on-year, slower than the 3.8 per cent expansion in the preceding quarter. o This was largely due to weaker growth in the wholesale trade segment, which came on the back of a moderation in non-oil re-exports growth. On a quarter-on-quarter seasonally-adjusted annualized basis, the services producing industries grew at an annualized rate of 3.3 per cent, reversing the 5.3 per cent contraction in the first quarter. A.4 TRANSPORTATION & STORAGE Growth in the transportation & storage sector slowed to 2.0 per cent on a year-on-year basis, from 5.5 per cent in the first quarter, weighed down by slower growth in the water transport segment. On a quarter-on-quarter seasonally-adjusted annualized basis, the sector contracted by 1.6 per cent in the second quarter compared to the 3.3 per cent decline in the previous quarter. A.5 ACCOMMODATION & FOOD SERVICES Growth in the accommodation & food services sector slowed to 0.5 per cent year-on-year from 2.1 per cent in the first quarter, due to weaker expansion in the accommodation segment. On a quarter-on-quarter seasonally-adjusted annualized basis, the sector contracted at an annualized rate of 1.6 per cent, in contrast to the growth of 1.6 per cent in the previous quarter. A.6 INFORMATION & COMMUNICATIONS Growth in the information & communications sector slowed to 2.5 per cent from 2.6 per cent in the first quarter. On a quarter-on-quarter seasonally-adjusted annualized basis, the information & communications sector grew by 5.1 per cent. A.7 FINANCE & INSURANCE Page 4 of 12
The finance & insurance sector expanded by 5.5 per cent year-on-year in the second quarter, largely similar to the 5.7 per cent growth recorded in the previous quarter. o Growth was supported by the core financial intermediation and insurance segments. On a quarter-on-quarter seasonally-adjusted annualized basis, the growth of the sector accelerated to 11.6 per cent from 4.6 per cent in the previous quarter. A.8 BUSINESS SERVICES The business services sector expanded at a slower pace of 2.3 per cent year-on-year compared to 3.3 per cent in the first quarter. o The slowdown in growth was largely due to significantly weaker growth in the rental and leasing segment. On a quarter-on-quarter seasonally-adjusted annualized basis, the sector grew by 1.4 per cent in the second quarter, reversing the 1.7 per cent contraction in the preceding quarter. A.9 OTHER SERVICES INDUSTRIES The other services industries grew by 2.6 per cent year-on-year in the second quarter, slightly faster than the 2.2 per cent expansion in the preceding quarter. o This came on the back of stronger growth in the education, health and social services segment. On a quarter-on-quarter seasonally-adjusted annualized basis, the sector grew by 8.9 per cent, rebounding from the 1.1 per cent decline in the previous quarter. Source: http://www.mti.gov.sg/researchroom/siteassets/pages/economic-survey-of-singapore- Second-Quarter-2014/PR_2Q14.pdf B. BUSINESS SENTIMENTS FOR JUL 2014 TO DEC 2014 According to a survey by the Singapore Economic Development Board (EDB), The manufacturing sector expects business situation to remain positive in the second half of 2014. o A weighted 9 per cent of manufacturers expect business conditions to improve while a weighted 3 per cent foresees a deterioration. o This results in a net weighted balance of 6 per cent of manufacturers expecting a favorable business situation for the period July-December 2014, as compared to the second quarter of 2014. Within the manufacturing sector, the precision engineering cluster has the most optimistic outlook, with a net weighted balance of 11 per cent of firms projecting better business prospects in the second half of 2014. Page 5 of 12
o Both the machinery & systems and precision modules & components segments forecast higher orders, on the back of improved economic conditions in the US and Asia. The transport engineering cluster is the next most optimistic, with a net weighted balance of 10 per cent of firms forecasting a positive business outlook in the next six months ending December 2014. o The marine & offshore engineering segment continues to be supported by replacement demand for oil rigs and higher orders for oil and gasfield equipment, in view of the strong oil and gas exploration activities. o The aerospace and land segments expect businesses to pick up, as orders are projected to increase with better global economic conditions. In the general manufacturing industries cluster, a net weighted balance of 9 per cent of firms expect business situation to improve in the second half of 2014, as compared to a quarter ago. o The food, beverages and tobacco segment anticipates higher festive orders, while the printing segment expects seasonal demand to lend support to its production momentum in the next six months. The chemicals cluster is the least upbeat about business conditions in the next six months ending December 2014, as compared to a quarter ago. o A net weighted balance of 3 per cent of firms project a less favorable business situation. This is largely attributed to the specialties segment which expects some plant maintenance shutdowns in the second half of 2014. Source: http://www.edb.gov.sg/content/edb/en/news-and-events/news/2014-news/businessexpectations-of-the-manufacturing-sector-business-sentiments-for-jul-dec-2014.html C. REVIEW OF 2Q 2014 TRADE PERFORMANCE According to International Enterprise (IE) Singapore, On a year-on-year (y-o-y) basis, Non-Oil Domestic Exports (NODX) declined by 4.6 per cent in June 2014, following the 6.6 per cent decrease in the previous month, due to the contraction in electronic NODX which outweighed the rise in non-electronic NODX. Electronic exports fell 17.4 per cent compared with June last year, after declining 15.3 per cent in the previous month. o The decrease was largely due to shrinking sales of integrated circuits or ICs (-17.3 per cent), PCs (-32.2 per cent) and parts of PCs (-18.5 per cent). Non-electronic exports in June rose 1.3 per cent from the previous year, following a 2.4 per cent slump in May. o The rise was led by pharmaceuticals (+24.3 per cent), petrochemicals (+29 per cent) and printed matter (+32.6 per cent). Page 6 of 12
Except Malaysia, Indonesia, China and Taiwan, NODX shipments to all top 10 Singapore markets dropped year-on-year in June. o Hong Kong, South Korea and the European Union were the three biggest contributors to the decline. NODX to emerging markets increased by 18.0 per cent in June 2014, following the 2.2 per cent expansion in the previous month. o The rise in NODX to the emerging markets was due mainly to the Caribbean, CLMV (i.e. Cambodia, Laos, Myanmar and Vietnam) and the Middle East. On a y-o-y basis, Non-Oil Re-exports (NORX) expanded by 7.5 per cent in June 2014, in contrast to the 4.7 per cent decrease in the previous month, due to the growth in both electronic and non-electronic NORX. o NORX to all of the top 10 NORX markets, except Indonesia, Thailand, the US and Malaysia, increased in June 2014. o The top three contributors to the NORX rise in June 2014 were Hong Kong (+32.5 per cent), China (+22.6 per cent) and South Korea (+25.2 per cent). In summary, the second quarter of 2014 saw positive year-on-year growth for total trade and non-oil re-exports. o Singapore's total trade expanded by 2.9 per cent in 2Q 2014, following the 7.2 per cent increase in the previous quarter. o Non-oil domestic exports (NODX) declined by 3.4 per cent in the second quarter, after the previous quarter s decline of 1 per cent, dragged down by lower shipments of electronic exports. Page 7 of 12
o Non-oil re-exports (NORX) expanded by 2.9 per cent during the quarter, following the 14.3 per cent increase in the previous quarter, mainly due to higher shipments of electronic re-exports which outweighed the decline in non-electronic re-exports. IE Singapore has revised downwards its projection for total trade in 2014 to between 1.5 and 2.5 per cent, and the projection for NODX to between - 2.0 and -1.0 per cent. Source: http://www.iesingapore.gov.sg/media-centre/media-releases/2014/7/singapore-s-external- Trade-June-2014 D. ECONOMIC OUTLOOK FOR REMAINING 2014 Singapore s economy unexpectedly contracted in the second quarter as higher labor costs and company moves to shift production overseas hurt manufacturing. o Manufacturers such as Western Digital Corporation have moved operations to other countries in recent years as employers on the island grappled with tighter rules for foreign labor that have pushed up costs and crimped some companies ability to meet a recovery in demand from the U.S. and Europe. o Based on the 2013 Manpower Survey Results of the American Chamber of Commerce, about 25 per cent of U.S. companies plan to move operations out of Singapore, rising from 12 per cent last year. Economists commented that growth has been impeded by tight labor constraints even as global demand recovers. o The Singapore government has stepped up efforts to lure new industries such as research and development as it reshapes the economy while cutting reliance on cheap overseas workers. o But restructuring appears to be failing because the manufacturing sector is facing tremendous pressure from the restructuring. o The restructuring has been blamed for Singapore's dismal showing in manufacturing and exports in the past few months, and there are signs that the malaise is spreading to services firms, especially those in wholesale trade, retail and financial services. Economists pointed to the persistent weakness in the services sector as the biggest threat to Singapore's economy this year. o If the services sector continues to lose steam, it would pose a threat to the medium-term prospects of the Singapore economy given its relatively large contributions to GDP and employment. o Low activity in areas such as tourism, property, hotels and restaurants has been warned. More Chinese tourists are shunning Southeast Asian holidays and the weak rupiah has made it more expensive for Indonesians to travel to Singapore. Page 8 of 12
o The services sector makes up two-thirds of the Singapore economy while the manufacturing sector accounts for about a fifth of the Singapore economy. The Monetary Authority of Singapore expects wage pressure to persist, with firms likely to pass on business costs, as a result of the tight labor market. o The central bank, which uses Singapore s dollar to manage price pressure, said in April that it will maintain a modest and gradual appreciation of the currency. The Monetary Authority of Singapore has expressed confidence that economic growth in the second half should see a slight improvement as there are several key factors to the improved prospects for the rest of the year. 1. The external environment remains generally favorable, with both major engines of global growth intact. o In the US, recent data indicate continued economic expansion. Both manufacturing and services PMIs (Purchasing Managers' Index) are up. The labor market continues to improve. There is also a modest rise in business spending, which is a key driver of growth in the US. o In China, growth should come within the consensus range of 7% to 7.5%. There are some headwinds from ongoing structural reforms but targeted policy measures will provide support to the economy. 2. Sectors dependent on regional demand (e.g. financial intermediation services, business services, and chemicals) should do well. o These sectors will benefit from higher regional incomes as the pick up in exports bolsters domestic demand in Asia. 3. Domestic oriented sectors should stay resilient. o The construction industry is supported by a pipeline of infrastructure projects while domestic corporate and consumer spending will lend support to the info-communications and other essential services such as healthcare and education. Based on a quarterly study on business sentiments conducted by the Singapore Business Federation and DP Information Group, Singapore s small and medium sized enterprises (SMEs) are slightly more positive about their growth in the remaining six months of 2014. o Overall revenue and profit expectations, capital investment, capital utilization, access to funding and hiring expectations are all up, while business expansion expectations are flat. o SMEs are still affected by domestic constraints such as the latest round of increased foreign workers levies kicking in from July, constraining Page 9 of 12
their ability to take on new projects and likely to result in a less robust growth momentum. Economists concluded that they should see some pick-up in industrial production as global growth improves. o Singapore s economy is expected to rebound in the third quarter and analysts predicted growth of 3.4 per cent this year. o Most full-year GDP growth forecasts now hover around the 3.5 per cent mark, below 2013's 3.9 per cent expansion. o Other potential risks highlighted by analysts include financial market reactions to anticipated hikes in United States interest rates next year, as well as inflationary expectations that may grow later this year. E. APPENDICES NOTE: The KITA Singapore report also makes references to the following business news articles published between July 2014 and August 2014. SINGAPORE BUSINESS NEWS Economists query semicon output fall in Q2 (15 Jul 2014) Ref: http://www.businesstimes.com.sg/premium/top-stories/economists-query-semiconoutput-fall-q2-20140715 Economists have started downgrading Singapore s full-year GDP growth forecasts, after disappointing Q2 numbers being dragged down by manufacturing's lacklustre performance. o Most full-year GDP growth forecasts now hover around the 3.5 per cent mark, below 2013's 3.9 per cent expansion. Economists are hoping for more clarity from Singapore's Economic Development Board (EDB) on this year's surprise drop in semiconductor production. Page 10 of 12
o EDB has continued to decline to share the name of the company, the specific reasons for the output fall, and the nature of the company's operations, citing company confidentiality reasons. While most economists have interpreted the drop in semicon output to mean that a large firm had relocated out of Singapore, others think it's possible that a company could simply be upgrading its machinery a more sanguine explanation for this year's downtime. o Economists acknowledged that EDB could have contractual obligations preventing it from explaining the semicon output drop. Singapore economy on track to grow 2-4% in 2014 (25 July 2014) Ref: http://www.mas.gov.sg/news-and-publications/speeches-and-monetary-policystatements/speeches/2014/mas-annual-report-2013-2014.aspx Monetary Authority of Singapore (MAS) commented: Despite a slowdown in the second quarter, Singapore s economy is on track to grow 2-4 per cent this year while inflation will narrow to 1.5-2 per cent. o MAS expressed confidence that economic growth in the second half should see a slight improvement, although pockets of challenges remain. There are several key factors to the improved prospects for the rest of the year. 1. The external environment remains generally favorable, with both major engines of global growth intact. In the US, recent data indicate continued economic expansion. Both manufacturing and services PMIs (Purchasing Managers' Index) are up. The labor market continues to improve. There is also a modest rise in business spending, which is a key driver of growth in the US. In China, growth should come within the consensus range of 7-7.5%. There are some headwinds from ongoing structural reforms but targeted policy measures will provide support to the economy. 2. Sectors dependent on regional demand (e.g. financial intermediation services, business services, and chemicals) should do well. These sectors will benefit from higher regional incomes as the pick up in exports bolsters domestic demand in Asia. 3. Domestic oriented sectors should stay resilient. The construction industry is supported by a pipeline of infrastructure projects while domestic corporate and consumer spending will lend support to the info-communications and other essential services such as healthcare and education. Singapore s economy performed worse than the market had expected in Q2 expanding 2.1 per cent compared to a year ago according to advance estimates of gross domestic product (GDP) released by the Ministry of Trade and Industry (MTI) recently. o Most full-year GDP growth forecasts have now been revised to hover around the 3.5 per cent mark. MAS will remain vigilant in ensuring that cost pressures are contained over the medium term, and inflation expectations are well anchored. o The 2014 forecast for core inflation, which strips out accommodation and private road transport costs, is expected to remain at 2-3 per cent. Page 11 of 12
o MAS also said the modest and gradual appreciation path of the local currency since April 2010 has restrained but not fully offset temporary inflationary pressures from economic restructuring. Singapore s trade expands for third straight quarter (12 August 2014) Ref: http://www.iesingapore.gov.sg/~/media/ie%20singapore/files/publications/singapore%20tra de%20statistics/quarterly%20trade%20statistics/2014/trade20report202q20201420withou t20annex.pdf International Enterprise (IE) Singapore reported: The second quarter of 2014 saw positive year-on-year (y-o-y) growth for total trade and non-oil re-exports (NORX). o On a y-o-y basis, Singapore's total trade expanded by 2.9 per cent in 2Q 2014, following the 7.2 per cent increase in the previous quarter. On a y-o-y basis, non-oil domestic exports (NODX) declined by 3.4 per cent in the second quarter, after the previous quarter s decline of 1 per cent, dragged down by lower shipments of electronic exports. Non-oil re-exports (NORX) expanded by 2.9 per cent during the quarter, following the 14.3 per cent increase in the previous quarter, mainly due to higher shipments of electronic re-exports which outweighed the decline in non-electronic re-exports. IE Singapore has revised downwards its projection for total trade in 2014 to between 1.5 and 2.5 per cent, and the projection for NODX to between - 2.0 and -1.0 per cent. Page 12 of 12