Recent Economic Developments in Singapore Outline for

Recent Economic Developments in Singapore

Outline for this Presentation Structure of the Singapore Economy Business Cycles in Singapore Dynamics of the 2001 Recession Characteristics of the Initial Upturn Support Provided by Policy

Structure of the Singapore Economy

Importance of Trade to Singapore

Structure of the Economy By Sector Business Services (14%) Financial Services (12%) Transport & Comm. (11%) Commerce (18%) Others (17%) Manufacturing (22%) Construction (6%) Key Services Sectors = 67%

Manufacturing Output Petroleum Products (4%) Machinery & Equipment (6%) Transport Equipment (9%) Electronics (38%) Fabricated Metal Products (5%) Others (21%) Chemicals (17%)

Pharmaceutical industry’s linkages with rest of the economy limited… Imports Pharmaceutical Industry Exports (99%) Domestic (1%) v Accounts for only 8% of total manufacturing output v Employment generation limited: 0. 6% of total manufacturing employment

…unlike the electronics industry Imports Supporting Industries Electronics Industry Exports (72%) Domestic (28%) v Accounts for 42% of total manufacturing output v Generates higher employment: Electronics- 30% of total manufacturing employment Supporting- 37% of total manufacturing employment

Structure of the Economy: Exports by Product Electronics (61%) Oil (18%) Non-oil (82%) Chemicals (13%) Others (16%) Misc Manufactured Articles (10%)

Structure of the Economy: Exports by Country ASEAN-3 18% NIE-3 15% Others 15% Japan 10% North America 23% EU 18%

Summary I Ultra Open Economy Manufacturing & Services as Twin Pillars Dominance of Electronics in Manufacturing / Exports Chemicals Rising But Less Linkages & Multiplier’s Effects

Business Cycles in Singapore

GDP Growth from 1980 Singapore’s Real GDP (LHS) Composite Foreign GDP (LHS) Global Chip Sales (RHS)

Dynamics of the 2001 Recession

World Demand-Domestic Supply Curve DS 1 Price Level (Domestic currency) WD 1 WD 2 Q 1 Real GDP

The Singapore economy contracted by -2. 0% in 2001 Overall Services. Producing Industries Goods. Producing Industries

Exports & industrial output fell sharply Domestic Exports Fall in External Demand NODX Electronics Drop in NODX Cutback in Production Industrial Production Overall Electronics

Services exports were also affected Re-Exports Fall in External Demand ASEAN-3 Total Drop in NODX Cutback in Production Spillover to Services Sectors NIE-3 Q 1 Services Exports Overall Transport Travel Q 1

Adjustments in the Labour Market LD W/P LD LS 1 C A X X B X N

Flexible wage response Average Nominal Earnings, SA W - CPF - non CPF 85 Q 1=100 97 Q 4=100 00 Q 4=100 No. of quarters

Comparisons Across Downturns Summary of Key Indicators : Peak-to-Trough Adjustments Real GDP -10 -7. 7 (3 Q) -8 -3. 1 (3 Q) -5. 3 (3 Q) -28. 4 (4 Q) -7. 7 (4 Q) -12. 9 (2 Q) Exports -40 -6 -4 -20 0 0 2 GDP Downturn in 2001 1998 1985 -1 -2 -3 -0. 9 (3 Q) -1. 6 (4 Q) -2. 0 (4 Q) 2. 1 (4 Q) 3 2. 7 (5 Q) 3. 6 (7 Q) 4 Unemployment Rate CPI

Summary II More volatile environment – 3 shocks in 5 years Cause shifts in AD curve Dynamics of Recession : Exports Output Services Labour Market Prices 2001: Deepest Recession 2001 : Wages adjusted quickly

Characteristics of the Initial Upturn

US economy Personal Consumption Non-Residential Fixed Investment GDP

Turnaround in domestic economic activity GDP (SAAR) GDP (YOY)

Manufacturing driving the uptick in growth Manufacturing Value-Added Surge in manufacturing SAAR in Q 4 2001 continued into Q 1 2002… Non-oil, Nonelectronics …along with positive NODX growth in the last two quarters. . . NODX Electronics

Hub-related services doing well. • Re-exports supported by regional trade • Singapore provides hub services Real Non-oil Re-exports Air Transhipment Cargo

Divergent Paths? • Electronicsled initially • Chemicals surge more recently • Chemicals has less spillovers Electronics (SAAR) Non-electronics (SAAR) Total (SAAR) Apr. May

Support Provided by Policy

World Demand-Domestic Supply Curve DS 1 Price Level (Domestic currency) WD 1 WD 3 WD 2 Q 3 Q 1 S$175 US$1. 75/S$ S$170 US$1. 70/S$ Real GDP

Macroeconomic Policy Mix Easier Monetary Conditions Expansionary Fiscal Policy off-budget packages multi plier effec t 1. 3% point boost to economy

Outlook for Growth Manufacturing sector expected to turn in steady growth Moderate rebound for the services sector Financial services sector to remain weak Construction sector expected to contract further GDP Growth to come in at the upper half of the 2 -4% forecast range

Summary III Led by initial turnaround in the US Led by electronics & trade-related services Conducive Macro-Policy Mix Risks to Growth Equity Markets Real Economy Consumption (Wealth Effect) Investment (Profit Cycle) IT Spending Slump - Postponement of replacement demand

Conventions used in data presentation V. A. (real terms) Xt YOY % X t - X t-12 * 100 X t-12 QOQ % X t - X t-1 * 100 X t-1 QOQ SAAR (( SA X t ^4 ) - 1) * 100 SA X t-1

A % deviation from baseline Xt-X B Xt B t * 100 B Baseline Values : X t A Alternative Values : X t