Singapore: Third Year of Recession?

Morgan Stanley's Daniel Lian with some news about downward growth revisions in Singapore:

Recession is looming in Singapore, in our view. Real GDP grew 1.6% YoY in 1Q03, and the economy appears to be decelerating significantly in 2Q03 as domestic demand is hit hard by SARS and as services exports, chiefly tourist receipts, are impacted negatively by SARS. Tourist arrivals dropped about 70% for the period April to May 19. Based on the correlation between tourist arrivals and consumer confidence and retail sales, we think it is reasonable to assume a double-digit decline in retail sales over the same period.

The deceleration has also spread to the goods sector. Both manufacturing and merchandise export sectors have lost momentum in April and May — a phenomenon that we also observe elsewhere in Asia. Latest figures suggest that manufacturing production fell 5% YoY in April, and there appear to have been disruptions to the supply chain. The negative impact on the goods sector does not bode well for an economy that is already hard hit by the weakness of its services sector.

We believe both goods and services will contract to the tune of 3% or more in 2Q03. Therefore, despite our recovery scenario for 2H03, we expect GDP growth to weaken to a mere 1% in 2003. Singapore has probably entered its third year of recession, with a significant rise in unemployment, relative stagnancy in labor and income, and a significant loss in household confidence dealing blows to domestic demand.
Source: Morgan Stanley Global Economic Forum
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