Is Singapore in Recession?


By Michael Shari In 2000, Singapore's economy grew faster than any other in Asia except Hong Kong's, posting a 9.9% increase in gross domestic product. But the global downturn in the electronics industry and plant closures in Singapore have pushed the city-state into a technical recession during the first half of 2001, according to preliminary figures announced by the government on July 11. And now some economists are predicting things will get worse before they get better.

From April to June, the economy contracted 10% compared to the first quarter, which also saw negative growth, according to the Ministry of Trade & Industry. While the Ministry is predicting the economy will still grow marginally in 2001, independent economists aren't so bullish. They say growth may come later in the year -- but, even so, the economy could still shrink by at least 0.5% this year, according to David Cohen, regional director of economic forecasting at Standard & Poor's MMS in Singapore.

Even that may be an optimistic scenario. For the economy to shrink in the 0.5% to 1.5% range this year would require 3% growth in the third quarter and 7% growth in the fourth. Cohen says such a Herculean recovery would have to be led by increased output in the electronics-manufacturing sector, which declined by 10.9% in May from a year earlier, according to the Ministry. "And that's if they reopen some of these factories that have closed down," Cohen points out.

PRIMING THE PUMP. The Singapore government's projections for the second half of the year are more upbeat than Cohen's. The Ministry's announcement, which described the second-quarter results as preliminary, said the economy would grow in 0.5% to 1.5% this year. That could be achieved through pump-priming measures, such as the acceleration of planned road and subway construction projects, says Lim Jit Soon, head of research at Salomon Smith Barney in Singapore. In 1998, when Singapore last fell into a technical recession marked by two consecutive quarters of negative growth, the government helped employers cut costs by reducing by 50% their required contribution to the Central Provident Fund, the national pension plan.

The current recession is the direct result of the slowdown in Singapore's export-oriented electronics sector. In addition to the decline in electronics manufacturing, nonoil domestic exports dropped 8.5%. And Singapore has lost thousands of jobs this year with the closure of several manufacturing plants, such as Maxtor Corp. of San Jose, Calif., which announced in June that it would eliminate 700 jobs. Singapore-based Creative Technology recently warned of a 10% earnings shortfall and said it would cut its work force by 10%.

The downturn is also a function of the consolidation wave that swept through the contract-manufacturing industry last year. For example, in October, Solectron Corp. of Milpitas, Calif., acquired Singapore-based NatSteel Electronics, which had plants in such far-flung places as Singapore, Mexico, and Hungary.

To cut costs worldwide, Solectron and Singapore-based Flextronics are closing down their Singapore plants and moving jobs to plants in other countries where costs are lower. "We moved whatever could be done in Malaysia and China out of Singapore," says Peter Tan, CEO of Flextronics' Singapore unit. For example, the cell phones that last year Flextronics had assembled in Singapore are now assembled in Shanghai, while the assembly of Hewlett-Packard printers and the manufacturing of printed circuit boards has been moved to Malaysia.

NOT SOON ENOUGH. Help is on the way, but it may take until 2002 to kick in. During the first quarter of 2001, foreign investors pledged more than $4 billion in new semiconductor plants and biotech research labs in Singapore. That includes a $3.6 billion wafer fabricating plant being built by United Microelectronics of Taiwan and four new facilities Schering-Plough Corp. has announced it will build at a cost of $450 million. Salomon's Lim predicts the government's Economic Development Board will bring in more investments and that the government may achieve its modest growth target in 2001.

Still, few economists are convinced more foreign investment or pump-priming will make enough of a difference to stimulate seasonally adjusted growth by the end of the year. "Their [the government's] estimate really requires a roaring rebound that is nowhere in sight," says Cohen. "No one is heralding a new boom market." Currency traders appear to agree, having sold the Singapore dollar down 0.4% on July 11 to an 11-year low against the U.S. dollar. Shari covers politics and economic issues for Business Week in Singapore


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