Downturn hits more companies but pessimism is waning

(SINGAPORE) Businesses are now less pessimistic about the next six months, although business conditions deteriorated in the first quarter, the BT-UniSIM Business Climate Survey has found.
Even so, the decline in sales, profits and new business orders has slowed significantly.

The survey’s indicators, which have been found to correlate closely with economic performance, point to a 7.7 to 9 per cent year- on-year contraction in GDP in the second quarter.

The latest quarterly survey polled 162 local and foreign companies here in early April on their six-month business outlook, as well as sales, orders and profits for the first quarter.

Showing a marked improvement was the business prospects net balance indicator, which reflects the difference between positive and negative responses.

At minus 57 per cent, this gauge of business confidence rose 26 percentage points from the preceding quarter.

Although 40 points down from the optimism of 2008′s first quarter, it has returned to a level similar to that in the first half of 2007.

Less pessimism was seen across all types and sizes of firms, although small firms and foreign firms tended to be more bearish, the findings showed. Both groups posted business prospects net balances of below minus 70 per cent.

A detailed breakdown of the findings echoed this improved sentiment. One-fifth of firms expect things to become ‘much worse’, down from two-fifths in the previous quarter. But those that foresee ‘much better’ days ahead rose to 11 per cent, from 3 per cent in the previous quarter’s survey.

More companies were hit by shrinking sales, profits and new business orders in the first quarter, and more firms saw larger percentage falls. But the rate of decline of these net balance indicators slowed.

‘The implication is that the fall in business activity may start to subside in the near future,’ survey director Chow Kit Boey said.

The sales net balance lost 12 points to minus 57 per cent, while that for profits slipped 18 points to minus 58 per cent. The decline has slowed, from the falls of 35 and 31 percentage points, respectively, seen in the last quarterly survey.

New business orders fell at a slower pace last quarter too. The indicator lost 9 points to 66 per cent, compared to the preceding quarter’s 40 percentage points plunge.

Applying business cycle analysis to firms’ expected business activity, Ms Chow’s prediction is that the economy will reach a trough by the end of this year.

Comparing companies by size, the survey found that larger businesses outperformed smaller ones on sales, profits and new orders indicators – although the differential between them has narrowed. Pessimism among large firms also declined more sharply than among small firms.

By ownership, local firms performed better than foreign firms on all counts. The gap between local and foreign firms’ sales and business prospects widened substantially in the first quarter too.

Sector-wise, the star performer of the quarter was the construction sector, whose sales, profits and orders were the highest overall, and also tops among large firms and local firms.

But construction firms are not the most upbeat about business in the next six months. Those in the transport and communications sector reported the best business prospects.

For small firms, the financial and business services sector looks most promising in the coming six months, probably because small firms from that sector posted the highest levels of orders and new business in the first quarter too.

Source: Business Times, 11 May 2009

Forecasters polled by MAS hazard 3.3% GDP growth for 2010

(SINGAPORE) The economy looks headed for another record contraction in the current quarter, with economists forecasting an 8.5 per cent fall in GDP for the period.

Economists polled late last month by the Monetary Authority of Singapore forecast the economy shrinking by between 6 and 10.7 per cent in Q1, with all key sectors, except construction, posting negative numbers.

The median forecast from the 20 economists is an 8.5 per cent GDP decline, which would be not just markedly worse than the preceding Q4′s 4.2 per cent fall but also the previous low of 6.5 per cent decline in Q3 2001.

The MAS survey, which was sent out on February 26, seeks forecasts on only a year-on-year basis, not quarter-on-quarter terms.

In three successive quarters of q-o-q decline, GDP growth slowed to just 1.1 per cent in 2008.
The economists polled also see another two quarters of year-on-year GDP declines in Q2 and Q3 – of 6.9 and 4.6 per cent respectively – before a 0.5 per cent rebound in Q4.

Year-round, GDP is projected to contract close to 5 per cent: the forecasts average -4.8 per cent, with a -4.9 per cent median.

This current forecast of 2009 GDP growth – compared to an estimate of -1 per cent in the previous poll in December 2008 – is of course at the tail end of the official estimate of 2-5 per cent contraction for the year.

But senior leaders have since come out to say that the economy could well sink by 8-10 per cent this year – if Singapore’s exports tank sharply by a third or more.

In the MAS poll, the economists thought it most likely that the economy would shrink by 5-5.9 per cent this year, with a 20 per cent chance seen in a contraction of 6-6.9 per cent.

Both the manufacturing and financial services sectors are expected to post double-digit declines in the current Q1 – manufacturing by about 20 per cent, financial services about 11 per cent.

Meanwhile, the inflation rate – which averaged 6.5 per cent in 2008 – is expected to ease to just 0.2 per cent by year-end. But it will then rachet up again to 1.7 per cent in 2010, the economists reckon, when GDP growth for the year should rebound to, they hazard, 3.3 per cent.

Source: Business Time, 17 Mar 2009

PRIME Minister Lee Hsien Loong has said it again – the economy could shrink more than 5 per cent this year. And this time he said the contraction could be as sharp as 8 per cent – much more than the official forecast of -2 to -5 per cent.

‘People have asked me, ‘Can it be worse than minus 5?’ he said in a half-hour interview with business news channel CNBC. ‘Yes, it is possible, because it depends on the global situation.’

If Singapore’s exports were to fall by a third, its manufacturing output, which accounts for a quarter of gross domestic product (GDP), would also go down by a third ‘because we export nearly everything we make’, Mr Lee said.

‘And that means GDP will go down by one-twelfth, which is about 8 per cent, unless you can make up and grow some other part – construction, for example. So I think we brace ourselves for a tough year ahead.’

This is the second time in a week that PM Lee has raised the possibility of the economy shrinking more than 5 per cent.

At a Singapore Tripartism Forum dialogue last Sunday, he told an audience of 550 employers, unionists and government representatives: ‘Our GDP growth is forecast to be between minus 2 and minus 5 per cent. It could be worse if the global economy worsens, even lower than minus 5 per cent is possible.’

The International Monetary Fund last month slashed its forecast for 2009 global growth to 0.5 per cent, from a forecast of 2.2 per cent it made in November last year.

Some private-sector economists here have already started revising their growth forecasts, after the Ministry of Trade and Industry released figures on Thursday showing the economy shrank 4.2 per cent in the fourth quarter of 2008, worse than the 3.7 per cent decline estimated last month.

OCBC Bank, for example, now believes the economy will contract 4.8 per cent this year, compared with its previous forecast of a 2.8 per cent decline.

Mr Lee said that the current growth forecast of minus 2 to minus 5 per cent for 2009 – made after two revisions – is the worst since Singapore’s independence. ‘I think it is a realistic estimate because, if you look at the trade figures, all the countries in Asia now are having dramatic reductions in their trade,’ he said.

Japan is down 45 per cent, Taiwan 40 per cent plus and South Korea more than 30 per cent. Singapore’s total trade plunged 36 per cent in January.

Mr Lee also said that Singapore’s unemployment rate could hit 5 per cent this year – up from 2.3 per cent in 2008. ‘We see the retrenchment figures going up in the first quarter already,’ he said. ‘I don’t know what the latest numbers are. But the last one, which the unions mentioned, was almost 5,000 in the first quarter. So the retrenchment numbers will go up, the unemployment numbers will go up.’

The government is prepared to dig deeper into the national reserves if need be, but spending money is not the answer to Singapore’s current economic woes, Mr Lee said.

‘(It) depends on the situation. We have to see,’ he said. ‘We don’t want to spend all of our reserves. Neither is this a situation where (if) you spend money you will solve your problem. This is a global problem. We have to go through it.’

He said what the government can do is minimise the harm the downturn could do to Singapore’s economy.

‘And that’s what we have done with this (recent) Budget,’ he said. ‘We’ve had a very big Budget.

And if we need to do more, we will do more. We have the resources, we can do it. But it is not a problem where spending the money will cure you.’

Source: Business Times, 28 Feb 2009

Business confidence plummets as most companies expect situation to worsen: survey

(SINGAPORE) With business prospects hitting lows not seen since 2001, the economy could contract 5.8 per cent in the present quarter, according to the latest BT-UniSIM Business Climate Survey.

The survey, now in its 14th year, polled 167 firms for their business prospects for the next six months as well as sales, orders and profit performance for the last quarter of 2008.

The survey’s business prospects data, lagged one quarter, is a strong predictor of GDP which, according to survey director Chow Kit Boey, is expected to contract between 4.5 per cent and 5.8 per cent in the first quarter on a year-on-year basis.

Ms Chow said the worst case scenario could see 18 months of growth wiped out. ‘Should the economy contract at the higher end of the predicted range, then Singapore’s GDP in Q1 2009 would be close to that in Q4 2006 at 2000 market prices,’ she said.

The previous BT-UniSIM survey last November predicted that GDP would fall 1.2 per cent in Q4. In fact, the economy shrank 3.7 per cent year-on-year that quarter, according to preliminary figures from the Ministry of Trade and Industry last month.

GDP may fall 2 to 5 per cent this year, the MTI said, and the current recession, already shaping up to be the worst on record, is not likely to improve until at least the second half of the year, according to analysts.

Ms Chow said that based on her analysis of the business cycle, Q1 is unlikely to see bottom, with at least one more quarter of negative growth expected before recovery.

‘This implies that the Singapore economy, which entered a classical recession (two quarters of contraction) in Q3 2008, will contract at a higher rate in the third quarter of its current cyclical phase.’

The pessimism is pervasive. Official business expectations surveys published recently found that confidence plummeted across all sectors of the economy.

The BT-UniSIM survey found that a net balance of over 80 per cent of companies polled saw the situation deteriorating further. The net balance is the difference between the proportion of positive and negative responses.

That is the most downbeat response since the Sept 11 catastrophe.

The sentiment was shared among all types of firms, but foreign companies were the most bearish – almost all surveyed were pessimistic about the next six months. A whopping 36 per cent said things would be getting ‘much worse’, and only 3 per cent said things could get better.

Sales and profits net balances also turned sharply for the worse. About 40 per cent of firms said that profits fell for the quarter, compared to 9 per cent in the previous survey.

Over 40 per cent said that profits were more than 10 per cent less, double the proportion previously.

Sales were also badly hit in the fourth quarter, with a net balance of 44 per cent of firms reporting lower sales, compared to 9 per cent previously. The figures were similar for both local and overseas sales, suggesting that businesses see the downturn as a global phenomenon.

However, small firms appear the most badly affected, showing the worst performances in all indicators. The net balance for large firms’ profit was -36 per cent, compared to -75 per cent for small firms, while small firms encountered the worst sales performance and the largest declines for Q2.

All firms were equally pessimistic over business prospects, while two in five reported much lower orders or new business for the quarter. In sectors, construction – the high flyer for the past 11quarters – has been overtaken by the commerce sector, which is seen as having the best prospects across all sizes and types of firms.

Source: Business Times – 9 Feb 2009

The most bearish forecast to date says slide could touch 10%

Singapore, Taiwan and Korea are expected to be the worst-hit economies in Asia, a report from CLSA said this week.

Singapore could lose a tenth of its $245 billion economy, while Taiwan is expected to shrink 11 per cent and Korea 7 per cent in 2009, the Hong Kong- based research house said.

The forecast is the most bearish yet issued on the local economy. The Ministry of Trade and Industry last month downgraded its prediction for the year to between -5 per cent and -2 per cent and most private sector forecasts have come within the official range, with Credit Suisse (-5 per cent) and Deutsche Bank (-4.5 per cent) the most pessismistic.

Asianomics economist Jim Walker told Time magazine this month that Singapore and Taiwan could see GDP sink by 5 per cent to 10 per cent.

CLSA argued that key data points have swung in ‘extreme fashion’ in the last quarter of 2008. Based on its newly revised estimates, Singapore could suffer a ‘dramatic halt’ in personal consumption, coupled with double-digit declines in fixed investment and collapsing exports, the house said.

That is despite a record budget deficit and a $20.5 billion ‘Resilience’ package announced by the Singapore government in January. ‘We expect the bulk of the money to be saved,’ CLSA said.

Export volumes in Singapore are seen contracting a fifth in 2009, while collapsing domestic demand will likely mean a similar drop in imports. The MTI said that 2008 non-oil domestic exports fell 7.9 per cent and is expected to fall between 9 and 11 per cent this year.

CLSA said exports here have already dropped a seasonally adjusted 32.1 per cent from its July peak.

Manufacturers in both China and the US are now reducing inventories and this is likely to hurt economies that had expected to benefit from new orders. ‘China’s demand for parts and materials is still shrinking at an accelerating rate,’ CLSA noted.

OCBC economist Selena Ling said the surprise in the present downturn was not the contraction in manufacturing and exports, which have been poor for some time now. ‘What is relatively new is the speed of the drop-off in services growth, which are a huge part of GDP and employment,’ Ms Ling said.

CLSA said Hong Kong’s economy is also expected to contract, but by a less sharp 5 per cent this year. ‘The absence of a highly cyclical manufacturing industry and the absence of a physical property overhang means that Hong Kong will perform ‘better’ than Singapore,’ CLSA said.
Yesterday, Standard & Poor’s economist Subir V Gokarn said in a report that Singapore’s GDP could contract between 4.5 per cent and 5 per cent if the US economy shrinks 3.8 per cent in the worse case.

‘Strong external links, particularly to the US economy, will lead to a sharp contraction in 2009 as external demand slows down rapidly. A fiscal stimulus will help contain the slowdown, but in a limited way,’ he said.

Source: Business Times – 6 Feb 2009