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Recent Economic Developments in Singapore

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.

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Recent Economic Developments in Singapore

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  1. Recent Economic Developments in Singapore

  2. 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

  3. Structure of the Singapore Economy

  4. Importance of Trade to Singapore

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

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

  7. Exports (99%) Imports Domestic (1%) Pharmaceutical industry’s linkages with rest of the economy limited… Pharmaceutical Industry • Accounts for only 8% of total manufacturing output • Employment generation limited: 0.6% of total manufacturing employment

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

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

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

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

  12. Business Cycles in Singapore

  13. GDP Growth from 1980 Singapore’sReal GDP (LHS) Composite Foreign GDP (LHS) Global Chip Sales (RHS)

  14. Dynamics of the 2001 Recession

  15. World Demand-Domestic Supply Curve DS1 Price Level (Domestic currency) WD1 WD2 Q2 Q1 Real GDP

  16. The Singapore economy contracted by -2.0% in 2001 Overall Services-Producing Industries Goods-Producing Industries

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

  18. Fall in External Demand Drop in NODX Cutback in Production Services exports were also affected Re-Exports ASEAN-3 Total NIE-3 Q1 Services Exports Overall Spillover to Services Sectors Transport Travel Q1

  19. LD LS LD1 C A X X B X Adjustments in theLabour Market W/P N

  20. W - CPF - non CPF Flexible wage response Average Nominal Earnings, SA 85Q1=100 97Q4=100 00Q4=100 No. of quarters

  21. -10 -8 -6 -4 -40 -20 0 0 -1 -2 -3 2 GDP Downturn in 2001 3 1998 1985 4 Comparisons Across Downturns Summary of Key Indicators : Peak-to-Trough Adjustments Real GDP -7.7 (3Q) -3.1 (3Q) -5.3 (3Q) -28.4 (4Q) -7.7 (4Q) -12.9 (2Q) Exports CPI -0.9 (3Q) -1.6 (4Q) -2.0 (4Q) 2.1 (4Q) 2.7 (5Q) 3.6 (7Q) Unemployment Rate

  22. 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

  23. Characteristics of the Initial Upturn

  24. US economy Personal Consumption GDP Non-Residential Fixed Investment

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

  26. Manufacturing driving the uptick in growth Manufacturing Value-Added Surge in manufacturing SAAR in Q4 2001 continued into Q1 2002… Non-oil, Non-electronics …along with positive NODX growth in the last two quarters... NODX Electronics

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

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

  29. Support Provided by Policy

  30. DS1 WD1 S$175 US$1.75/S$ WD3 WD2 S$170 US$1.70/S$ Q2 Q3 Q1 World Demand-Domestic Supply Curve Price Level (Domestic currency) Real GDP

  31. Macroeconomic Policy Mix Expansionary Fiscal Policy off-budget packages Easier Monetary Conditions multiplier effect 1.3% point boost to economy

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

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

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

  35. % deviation from baseline XAt - XBt * 100 XBt Baseline Values : XBt Alternative Values : XAt

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