Singapore’s Growth Tied Intimately to Global Economic Recovery

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Nov. 6 – Singapore’s economy has shown modest growth in the third quarter of 2013. As Asian’s most trade-dependent nation, however, this does not necessarily signify recovery – in September, Singapore’s non-oil domestic exports slipped 7.3 percent compared to the same time last year.

Looking forward, however, positive growth in the G3 economies (Europe, Japan and the U.S.) should lead to more demand for Singaporean exports – in particular for electronics, where production has increased 20 percent year-on-year, up from 5.3 percent in August. China leads Asia in regaining momentum as well, suggesting an overall modest recovery for Singapore into 2014.

Singapore’s manufacturing production has expanded for the eighth consecutive month. Its Purchasing Mangers’ Index (PMI) rose to 51.2 last month, up from 50.5 in September. A PMI index above 50 represents industry growth while a reading below 50 represents a contraction.

Positive growth in electronics manufacturing has not yet reached international markets, as exports contracted by 5.5 percent year-on-year. The decrease in electronic domestic exports was largely due to disk media products, PC parts and telecommunications equipment.

Exports total to about three times the size of Singapore’s GDP. With that in mind, its economic performance has no choice but to ride along global tides. Rapid growth from China and other East Asian economies helped the nation avoid rough waters during the 2008 crisis. However, as China begins to slow down, some economists think Singapore should refocus on traditional export partners such as the U.S., Japan and the EU.

According to David Wilson, an economist with the ANZ Bank, every one percentage point change in U.S., European and Japanese growth historically has translated into a 1.8 percentage point change in Singapore’s GDP. A one percentage-point change in China’s growth, however, produces only a 1.4 percentage point change in Singapore’s GDP.

Nonetheless, stable pick-up in the developed economies is good news for Singapore. However, analysts point out some potential disruptions. For instance, if an U.S. fiscal impasse were to resurface in January, customer spending and sales orders would slump.

Looking towards Asia, Singapore’s non-oil domestic exports to China have almost doubled since 2009. In the last twelve months alone, shipments to China rose 21.4 percent. Despite the importance of G3 economies, Singapore cannot overlook Asia, as it accounted for 70 percent of Singapore’s total trade in 2012.

Singapore’s largest trade partner is the European Union, followed by the U.S., China and Malaysia.

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