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Easing pessimism raises hope for better days ahead

But not all economists agree with BT-UniSIM survey that full-year GDP is likely to hit 2.2%
Monday, August 8, 2016 - 05:50
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"To get anywhere near 1 per cent (for the full year), you would have to get 0 per cent growth for H2. Touch wood, but it doesn't look like that's going to be the case for now." - Ms Ling (above) on S'pore's GDP

Singapore

DESPITE all the doom and gloom, the Singapore economy is projected to expand at a faster pace this year, with a pick-up in business activity anticipated in the quarters ahead.

Full-year growth is likely to hit 2.2 per cent - above 2015's 2 per cent, and within the upper half of the official forecast of 1-3 per cent, according to the latest Business Times-UniSIM Business Climate Survey.

The quarterly poll, which garnered responses from 170 companies, found that business conditions improved in Q2. Contracting sales, profits, and orders affected fewer companies over the three-month period, almost regardless of firm size and ownership.

Pessimism over business prospects in H2 2016 also eased further - and for the third consecutive quarter at that. The survey questionnaire was sent out on June 21 (two days before the Brexit referendum), and closed on July 15. Said survey director Chow Kit Boey: "An improvement of two consecutive quarters in a contractionary phase confirms a trough has been reached . . . The likelihood of further improvement - or less pessimism - is very high from past patterns."

The report's net balances indicators, lagged a quarter, have tracked GDP growth closely over the survey's 21-year history.

Still, Ms Chow warned that  "a major new crisis" could end the upward trend, if the economy fails to adjust quickly.

Notwithstanding the better readings, Q2's net balances remained mired in deep contractionary territory - across sales, profits, and orders. So did the business prospects net balance - the difference between the proportion of sanguine versus pessimistic responses - which stood at -50 per cent in Q2, against -55 per cent in the previous quarter.

In fact, the current contraction phase in sales - the fourth since the survey began in 1996 - is in its 20th quarter. This is the longest and deepest one yet; previous contraction phases spanned six to 11 quarters during periods such as the Asian financial crisis and the global financial crisis.

Said the BT-UniSIM report: "This prolonged contraction phase suggests the presence of structural changes differing from previous contraction periods, as well as a more turbulent and interdependent global economy.

"It also corresponds to the longest period of low growth rates in year-on-year quarterly GDP. Since Q4 2011, GDP growth has not exceeded 5 per cent except in Q3-Q4 2013."

However, the deeply negative readings should be taken in context, said Ms Chow. When asked how worried Singaporeans should be by the survey findings, she stressed that the survey covers only businesses in major sectors of the economy. "It does not include public entities like hospitals. So the economy can post low positive growth or show weak expansion, while the net balances are in negative territory," explained Ms Chow.

The BT-UniSIM findings gel with a recent poll done by the Department of Statistics, which showed that pessimism within the services sector remains - albeit to a lesser degree for the second quarter in a row.

CIMB Private Banking economist Song Seng Wun attributed this to hopes that China's growth trajectory is flattening out, while OCBC economist Selena Ling said that globally supportive monetary policy has helped to keep negative sentiments in check.

But DBS economist Irvin Seah warned that "less negative sentiments don't make things positive". He believes BT-UniSIM's 2016 GDP growth forecast of 2.2 per cent is overly optimistic, and is anticipating a far lower reading of 1.5 per cent.

"Last year's fourth-quarter growth was exceptionally strong, and it was driven by the financial services sector. Now that engine is going into reverse gear, so there will be high base effects by the time we hit Q4," said Mr Seah.

He also foresees more pain in the labour market ahead, as he expects this year's redundancy numbers to surpass 2015's 15,580. Already, in the H1 2016, redundancies have breached the 10,000 mark.

While Ms Ling agrees that 2.2 per cent GDP growth is "probably a bit on the high side", she thinks it is plausible - especially since the central bank has said it expects second-half expansion to be similar to the first.

Economy watchers widely expect Prime Minister Lee Hsien Loong to narrow the government's full-year GDP forecast in his upcoming National Day Message, although they are divided on what the new range will be.

Mr Seah is the most bearish; he thinks a 1-1.5 per cent range makes the most sense, even though he acknowledges that a 1.5-2.5 per cent estimate would "give (the government) more flexibility to adjust ahead".

But Mr Song and Ms Ling think a 1-1.5 per cent or 1-2 per cent forecast range would be too low; the former expects an "about 2 per cent" estimate, and the latter, 1.5-2.5 per cent.

Said Mr Song: "I think they should knock the one per cent number out, to at least remove the negative connotation. That has really made people concerned about whether growth will really sink that low."

Ms Ling agreed: "If Singapore is really worried about H2 - whether due to Brexit, a Fed rate hike, or China risk - then a 1-2 per cent forecast would make sense. But that would be a totally different kind of signalling, because to get anywhere near 1 per cent (for the full year), you would have to get 0 per cent growth for H2. Touch wood, but it doesn't look like that's going to be the case for now."

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