Tuesday, April 14, 2009

Singapore is dropping quickly; dismal growth expected for the ASEAN countries

Singapore's Ministry of Trade and Industry announced a downward revision to its 2009 annual growth forecast on worse-than-expected advanced estimate for Q1 2009 growth, -11.5% since Q1 2008. This is a shocking report, representing a precipitous decline in economic activity in Singapore, and likewise, for the regional ASEAN-5 (the original members of the Association of Southeast Asian Nations, ASEAN).

The chart illustrates annual growth in Singapore since 1976 including the 2009 forecast. Based on the first quarter of economic activity, -11.5% drop since Q1 2008, Singapore's Ministry of Trade and Industry revised its 2009 growth forecast from between -2% and -5% in January to between -6% and -9% in April (-7.5% average). The forecast represents a sharp deviation away from normal economic activity, its worst since the 1970's (at least).

Advanced estimates show that the Q1 2009 economic contraction was led by a precipitous decline in manufacturing activity, -29% - its fourth consecutive quarterly decline, and services, -5.9% - its second consecutive decline. Construction grew 25.6% on previously committed infrastructure and housing projects, clearly mitigating the pain caused by manufacturing and services.

To be sure, the economy is suffering from a sharp retrenchment in U.S. import demand; but there are secondary effects, too, as regional trade is thus likewise anemic.

The chart illustrates ASEAN-5 annual growth for each quarter since 1976 when available. Historically, U.S. recessions pass on the pain to the rest of the world through reduced import demand, which drags ASEAN-5 trade-driven growth (circles in the chart). But contracting U.S. import demand is dragging down production and income, and consequently, regional demand; hence, secondary trade effects occur as ASEAN-5 regional exports also plummet.

From the Ministry of Finance GDP release:
The manufacturing decline was led by the electronics and precision engineering segments, but the chemicals cluster and the biomedical manufacturing cluster also saw large declines. With most of Singapore’s key trading partners still in recession, the manufacturing sector will continue to remain weak for the rest of the year.
Singapore is the first of the ASEAN-5 to release Q1 2009 growth, signaling weak growth estimates for the rest going forward.

Rebecca Wilder

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