What’s behind Singapore’s stellar 2nd quarter figures?
So by now you’ve probably heard that Singapore has finally exited a year long recession due to better than expected output figures for the second quarter of 2009. The question that should be on most people’s minds, in my opinion, is whether this growth is sustainable, a question that can only be answered if one considers why there was a manufacturing rebound in the first place.
Amid the spin from the state-controlled media, here’s some details which are buried deep (last few lines to be precise) in the news report by Channel News Asia:
Singapore’s trade ministry also cautioned that “the outlook for the rest of the year remains largely unchanged: of a weak recovery susceptible to downside risks.”
While the key manufacturing sector contracted by 1.5 percent in the June quarter, much narrower than the 24.3 percent shrinkage in the previous three months due to the spike in pharmaceuticals and electronics, the services sector was down 5.1 percent, it said.
Rising unemployment and reduced consumer spending in major export markets such as the United States and Europe reflected the continued weakness in the global economy, the ministry noted.
Note that the above article notes that cosumer spending abroad has actually declined. So what’s happening? The headline by Reuters says it all:
Drugs drag Singapore out of recession
Why the sudden spike in pharmaceutial exports? Swine flu fears of course. H1N1. Does this look like a sustainable economic recovery to you? It doesn’t to me. What happens when people become less afraid of swine flu as they apparently have over the past month or so?
Searching the news archive, I chanced upon this June 26th report by Bloomberg:
June 26 (Bloomberg) — Singapore’s industrial production unexpectedly increased in May as pharmaceutical companies boosted output.
“The pharmaceutical industry may have gotten a boost from demand for vaccines and other drugs amid the swine flu,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. “The broad picture shows that you can’t run away from the fact that electronics are still weak. I’m quite doubtful that this pace of recovery can be maintained.”
In fact the same article noted that if you specifically exclude drug production and exports, Singapore’s production figures actually decreased in the month of May compared to April:
Excluding biomedical manufacturing, production contracted 17.7 percent in May, after shrinking 15.4 percent in April, the report showed.
Pharmaceutical production, which accounts for about 20 percent of Singapore’s manufacturing, more than doubled in May, surging 138.6 percent after gaining a revised 78.7 percent in the previous month.
Get that? For the month of May, drug manufacturing jumped a whole 138.6%. It isn’t surprising if the Singapore government is secretly hoping that people worldwide would get more paranoid about swine flu so that the upswing would continue. But of course that alone didn’t account for everything. According to the MTI press release, a slight rebound in the electronics sector also contributed, though much of that rebound was due to inventory restocking rather than foreign demand spurred by consumers:
As you can see above, services and construction continued to fall at their worst rate since the recession begun. At the moment it seems the breakdown data in output due to the various manufacturing industries isn’t out yet. I’ll be updating this post when it does. That’s not to say there’s been no improvements. The WSJ notes that there’s been a slight uptick for non-pharmaceutical exports:
Tim Condon, an economist at ING in Singapore, expects a steady improvement in other sectors of the economy, including electronics, later this year as exports recover. He points out that an average of non-pharmaceutical manufacturing indexes, which includes electronics, has increased 7% since a low in February.
Having said that, I’d say the slight improvement is due to the green-shoots optimism back in April/May, which appears to have largely wilted at the end of June. Personally I’d say the recovery will not be U-shaped.
Update: M’sia’s The Star concurs in a news report today.