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02-09-2011, 04:59 AM
Business Times - 02 Sep 2011
59% chance of S'pore facing recession: report
By TEH SHI NING
(SINGAPORE) Various leading indicators now point to a 59 per cent chance of Singapore entering a recession, says a Bank of America Merrill Lynch (BofAML) report.
Stock prices, tech industrial production, the electronics leading index and the purchasing managers' index (PMI) new orders reading all point to a greater than 50 per cent likelihood of recession.
Key trade indicators like the non-oil domestic exports (NODX) and non-oil retained imports (NORI), and bond yield spreads, signal a less than 50 per cent probability of a recession.
BofAML economist Chua Hak Bin says the multi-variable approach's prediction is in line with his call for a second straight quarter of sequential contraction in Singapore's GDP this quarter.
Cautioning that the indicators are not uniformly accurate, Dr Chua says history shows NODX to be the most reliable, signalling four out of Singapore's last five recessions, failing to catch only the one triggered by the Sars epidemic. NODX now signals a 41 per cent possibility of a downturn, based on shrinking exports in July.
The NODX also raised a 'false alarm' just twice, compared to the Straits Times Index (STI), which caught all five recessions but predicted 11 over that period. The STI now points to a 55 per cent chance of recession.
Weakening external demand is expected to drive Singapore into a second sequential drawback in Q3, though 'whether this recession turns out to be shallow or deep will depend on how the global financial system weathers this downturn', he adds.
Not all agree with his prognosis of a Q3 technical recession. Credit Suisse, in a report released yesterday, continues to expect a 3 per cent quarter-on-quarter, annualised rebound in Singapore's GDP both this quarter and in Q4.
Having recently lowered their Singapore GDP forecasts for 2011 and 2012 to 5.5 per cent and 4.8 per cent respectively, Credit Suisse economists yesterday cut the 2012 growth forecast further to 4.5 per cent.
Also trimmed were growth forecasts for China, Hong Kong, India, Korea, Malaysia and the Philippines, for both this year and next, with weak US and European growth on the horizon and little prospect of aggressive interest rate cuts.
BofAML recently lowered its Asean growth forecasts too. Dr Chua believes that 'a recession, if it does materialise, will likely be of the milder rather than the more severe form'.
He noted in a report earlier this month, surveying past recessions, that Singapore tends to see a larger percentage-point fall in GDP growth than its Asean neighbours Malaysia, Thailand, Indonesia and the Philippines.
Singapore's recessions tend to last 11.3 months, compared to Malaysia's 15 months and the Philippines' 12.8 months.
Excluding the Asian crisis, Indonesia and Thailand saw shorter downturns of about six months.
Past recessions also shaved an average of five percentage points off inflation's peak, usually during the middle or later part of each recession. But with the potential recession expected to be milder, it is also likely to be less deflationary, Dr Chua says.
59% chance of S'pore facing recession: report
By TEH SHI NING
(SINGAPORE) Various leading indicators now point to a 59 per cent chance of Singapore entering a recession, says a Bank of America Merrill Lynch (BofAML) report.
Stock prices, tech industrial production, the electronics leading index and the purchasing managers' index (PMI) new orders reading all point to a greater than 50 per cent likelihood of recession.
Key trade indicators like the non-oil domestic exports (NODX) and non-oil retained imports (NORI), and bond yield spreads, signal a less than 50 per cent probability of a recession.
BofAML economist Chua Hak Bin says the multi-variable approach's prediction is in line with his call for a second straight quarter of sequential contraction in Singapore's GDP this quarter.
Cautioning that the indicators are not uniformly accurate, Dr Chua says history shows NODX to be the most reliable, signalling four out of Singapore's last five recessions, failing to catch only the one triggered by the Sars epidemic. NODX now signals a 41 per cent possibility of a downturn, based on shrinking exports in July.
The NODX also raised a 'false alarm' just twice, compared to the Straits Times Index (STI), which caught all five recessions but predicted 11 over that period. The STI now points to a 55 per cent chance of recession.
Weakening external demand is expected to drive Singapore into a second sequential drawback in Q3, though 'whether this recession turns out to be shallow or deep will depend on how the global financial system weathers this downturn', he adds.
Not all agree with his prognosis of a Q3 technical recession. Credit Suisse, in a report released yesterday, continues to expect a 3 per cent quarter-on-quarter, annualised rebound in Singapore's GDP both this quarter and in Q4.
Having recently lowered their Singapore GDP forecasts for 2011 and 2012 to 5.5 per cent and 4.8 per cent respectively, Credit Suisse economists yesterday cut the 2012 growth forecast further to 4.5 per cent.
Also trimmed were growth forecasts for China, Hong Kong, India, Korea, Malaysia and the Philippines, for both this year and next, with weak US and European growth on the horizon and little prospect of aggressive interest rate cuts.
BofAML recently lowered its Asean growth forecasts too. Dr Chua believes that 'a recession, if it does materialise, will likely be of the milder rather than the more severe form'.
He noted in a report earlier this month, surveying past recessions, that Singapore tends to see a larger percentage-point fall in GDP growth than its Asean neighbours Malaysia, Thailand, Indonesia and the Philippines.
Singapore's recessions tend to last 11.3 months, compared to Malaysia's 15 months and the Philippines' 12.8 months.
Excluding the Asian crisis, Indonesia and Thailand saw shorter downturns of about six months.
Past recessions also shaved an average of five percentage points off inflation's peak, usually during the middle or later part of each recession. But with the potential recession expected to be milder, it is also likely to be less deflationary, Dr Chua says.
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