Posted by: Frederik Balfour on October 12, 2009
Singapore’s economy, one of the worst hit in Asia early this year by the global downturn, has catapulted its way out of recession, clocking a 14.9% quarter-on-quarter annualized growth in the third quarter, the government reported on Monday. Year-on-year growth was 0.8%, compared with a contraction of 9.6 % and 3.2% in the first and second quarters. For more on this check Bruce Einhorn’s BusinessWeek magazine article “Singapore’s Economy Begins to Stir”.
It appears that Singapore’s green shoots are fast approaching tropical maturity, and that the region’s recovery may be V-shaped indeed. Singapore’s recovery is one of Southeast Asia’s most closely watched as a bellwether for the global economy because of its heavy reliance on exports—which is why it got so heavily whacked in the first half of the year.
Indeed, HSBC economist Robert Prior-Wandesforde is projecting 6.5% growth in 2010 for Singapore, with the possibility of double digit growth in the first quarter, according to an October 12 note to clients. And he’s not the only one sounding bullish about the region. Bank of America Merrill Lynch maintains that Asia will lead the global economic recovery, with China pulling the strongest. The banks points to China’s strong recovery in domestic private investment, particularly in the property sector, as well as stronger consumption, which is helping drive demand for imports from its Asian trading partners. That’s an important shift, because Korea, Singapore, Taiwan and Japan play an integral part in the China-centric supply chain which in turn depends largely on exports of final goods and machinery. To the extent that China can become less dependent on the U.S. consumer, the entire region will benefit. But China is still a long way from being able to take up all the slack as the Americans practice their new-found thrifty ways. China may have 20% of the world’s population, but accounts for just 3% of global consumption. For more on this, check out my book review of Stephen Roach’s “The Next Asia: Opportunities and New Challenges for Globalization.”
Meanwhile India is looking increasingly strong too. “India’s industrial sector is back and back with a vengeance,” wrote Prior-Wandesforde, remarking that the 10.4% annual growth in industrial output in August demonstrates “what could only be termed as a powerful V-shaped recovery.” Vietnam and Indonesia’s economies are also on track to grow, albeit slower than their multiyear averages. In late September the Asian Development Bank revised upwards its 2009 GDP growth projections to 4.7% for Vietnam and 4.3% for Indonesia.
The recovery across the region is leading analysts to focus on how governments will begin phasing out stimulus packages and tightening monetary policy which saw interest rates cut to record lows in an attempt to kick start their economies. With Australia’s move to increase its key borrowing rate by 25 basis points last week, others may be more willing to raise theirs too. The fear until now has been that any country which increases interest rates might unleash an inflow of hot money that would put upward pressure on exchange rates and hurt export competitiveness. However as Asian economies feel less pressure on the trade side, they may start tailoring monetary policy to keep inflation in check. The consensus is that many Asian currencies are overvalued against the dollar, but they have been reluctant to allow their exchange rates to appreciate so long as China keeps the yuan pegged to the dollar. However if they begin to follow Australia’s lead by hiking interest rates in the near future, they may also be forced to allow their currencies to strengthen. If that’s the case, now doesn’t look like a great time to be holding the greenback.