pan

Recent Economic Developments in Singapore

02 Jun 2011 2010 Q2 Real Sector
Real GDP Growth, y-o-y % Real GDP Growth, q-o-q saar % Index of Industrial Production, y-o-y % Non-oil Domestic Exports, y-o-y % 19.4 29.7 45.3 27.6 2.2 3.1 5.8 10.5 -16.7 13.7 23.7 2.1 3.4 5.4 12.0 3.9 25.7 17.6 2.2 4.0 7.5 14.5 29.7 22.8 2.2 2.8 5.6 8.3 22.5 15.0 12.3 1.9 5.2 8.5

2011 Q4 Full Year Q1

Q3

Labour Market and Prices

Unemployment Rate, sa, % (Average) CPI Inflation, y-o-y % Wage Growth, y-o-y %

Highlights: The Singapore economy saw a step-up in activity in Q1 2011

Following modest growth in Q4 2011, domestic economic activity expanded by 22.5% q-o-q saar (seasonally-adjusted annualised rate), led by a surge in manufacturing activity and trade-related services. Meanwhile, other services strengthened as well, led by healthy gains in the financial sector.

Global growth is expected to moderate in H2 2011

The G3 economies saw slower overall growth in Q1 while Asia continued to grow robustly. Forward-looking indicators such as Purchasing Managers Indices point to a slower pace of global economic activity in the second half of the year amidst increasing uncertainty.

Domestic economic activity is likely to be sustained at high levels this year

GDP growth is forecast to moderate to a more modest pace, even as it continues to be underpinned by strength across the manufacturing and regionally-oriented services sectors.

Domestic headline CPI inflation is expected to remain high over the next few months before easing over the rest of the year
Both domestic and external factors, including accommodation costs and commodity prices, will contribute to headline inflation, which is forecast to come in at the upper half of 3-4% this year. Core inflation, which excludes the cost of accommodation and private road transport, is expected to come in lower at 2-3% in 2011.
____________________________ Note: Labour market statistics were obtained from the Ministry of Manpower, while trade and index of industrial production (IIP) data were provided by IE Singapore and the EDB respectively. All other data in this document were obtained from the Building and Construction Authority, Department of Statistics, Ministry of Trade and Industry, unless otherwise stated.

A. Macroeconomic Overview
G3: Growth slows in US and Japan but picks up in the Eurozone Economic growth in the G3 economies as a whole was slower in Q1 2011. Consumer sentiment in the US was dampened by the oil price hikes earlier in the year while industrial production in Japan was hit by the disruption caused by the earthquake and tsunami in March. Growth in the Eurozone, however, came in better-than-expected, reflecting a robust performance in the core economies. Real GDP growth in the US lost some momentum at the turn of the year, slowing to 1.8% q-o-q saar in Q1 2011, down from 3.1% in Q4 last year. Higher energy prices and increased uncertainty in the external environment affected consumer and business sentiment, resulting in slower personal consumption growth of 2.2% after a strong 4.0% in Q4 2010. Government spending contracted further, while private fixed investment growth was also subdued, dragged down by the continued slump in the housing market. Net exports saw a temporary uplift in Q4 2010 and it contributed negatively to growth as imports resumed expansion in Q1. Inventory accumulation added around 1.2% points to real GDP growth, but this reflected weak final demand and is likely to reverse in the next period. The Japanese economy shrank again by 3.7% q-o-q saar in Q1 2011, putting it into a technical recession. Consumer and business sentiment was adversely affected by the Tohoku tsunami and earthquakeprivate consumption fell as consumers cut back on non-essential spending such as domestic travel while corporate capital investment declined. Net exports also faltered, shaving 0.4% point off growth as a result of disrupted supply chains arising from power outages.
Growth slowed in the US and Japan, but picked up strongly in the Eurozone.
10 5 0

Real GDP Growth US Eurozone

QOQ SAAR % Growth

Japan
-5 -10 -15 2005 2006 2007 2008 2009 2010 2011
Q1

Source: Datastream

In contrast, growth in the Eurozone accelerated to 3.3% q-o-q saar in Q1, driven by strong expansions in the core economies of Germany and France. German GDP is now back to pre-crisis levels, underpinned by a solid increase in industrial output. However, the peripheral countries of Portugal and Spain performed poorly due to ongoing fiscal consolidation and persistently high unemployment rates. This further underscores the trend of continued divergence between the core and 2

peripheral Eurozone economies. In the UK, GDP expanded by 1.9% q-o-q saar in Q1, reversing the weather-induced contraction in the previous quarter. Inflation in the US and the Eurozone has been trending upwards since the end of 2010. While this was mostly due to higher energy and food prices, core inflation was also a contributor, especially in the Eurozone. In Japan, headline inflation came in flat in Q1, after recording a small increase of 0.1% in Q4 2010. Core prices after excluding fresh food and energy fell by 0.6% in Q1, following a 0.8% decline in the previous quarter. Regional economies: Growth remained robust in Q1 In Asia ex-Japan 1 , some signs of a deceleration have emerged, with growth beginning to moderate in countries such as China, South Korea and Malaysia, which embarked on monetary policy tightening earlier. Most of the smaller and export-oriented economies, however, continued to see strong growth, boosted by a surge in exports to the advanced economies. After the slew of cooling measures implemented over the past year, Chinas GDP growth slowed marginally to 9.7% y-o-y in Q1 from 9.8% in the previous quarter. Net exports declined in Q1, while retail spending growth also softened. Meanwhile, fixed asset investment remained strong, supported by fast credit growth. Similarly, in India, GDP growth moderated slightly in Q1, but remained robust at 7.8% despite cumulative interest rate hikes of 250 basis points since early last year. More broadly, growth in the trade-dependent economies of the region continued to be vigorous in Q1, as a surge in exports more than offset some moderation in domestic demand. Sequential GDP growth rates have stayed firm and although y-o-y growth rates have slowed, they generally remain healthy at around 4-7%. In particular, South Korea, Taiwan and Thailand saw double-digit increases in exports, underpinned by a strong pickup in agricultural exports in the latter, while robust electronics exports supported the former two economies. Growth in private consumption and investment has eased in some of these economies albeit from the strong pace seen in the earlier quarters. With factor markets tightening across Asia ex-Japan, inflationary pressures have risen significantly in many countries. Headline CPI in Asia ex-Japan increased to 5.4% in Q1 2011, up from 5.0% a quarter ago. The spike in inflation also reflected a run-up in food and commodity prices, which picked up on the back of firming global demand and supply disruptions.
1

Asia here comprises China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

Singapore economy: Activity picked up strongly in Q1

The Singapore economy grew by 22.5% q-o-q saar in Q1 2011.
50 40 30 Per Cent 20 10 0

Real GDP

SAAR

YOY Growth
-10 -20 2005 2006 2007 2008 2009 2010 2011
Q1

Following a modest 3.9% q-o-q saar rise in Q4 2010, Singapores GDP growth accelerated in Q1 2011, recording a 22.5% sequential expansion. While services had recovered more quickly in Q4 last year, the manufacturing sector caught up in Q1 2011, boosted by an improvement in end demand.

Excluding the spike in pharmaceutical production, economic activity increased by 13%, supported by expansions across a broad range of industries. Within the services cluster, strong domestic and regional demand helped the financial, hotels & restaurants and other services sectors expand rapidly. i) Manufacturing Sector Manufacturing activity surged by 75.4% q-o-q saar in Q1 2011, after recording a 0.7% rise in the preceding quarter. Abstracting the spike in biomedical output, the rest of the sector grew by 27% q-o-q saar. Growth was underpinned by expansions in the electronics and precision engineering clusters. Electronics output grew by 31% q-o-q saar in Q1 2011, as the infocomms & consumer electronics segment saw an uptick, which in turn reflected the improvement of final demand in the G3 markets. This also had positive spillovers into the semiconductors segment.

Activity in the manufacturing sector rose sharply at the turn of the year.
200 Index (Q1 2005=100), SA 175 150 125 100

IIP Non-electronics

Total IIP

IIP Electronics
75 50 2005 2006 2007 2008 2009 2010 2011
Q1

Meanwhile, the precision engineering cluster received a boost from the step-up in machinery and equipment investments in Singapore. Other industries such as chemicals, transport engineering and general manufacturing, recorded positive gains as well.

ii) Construction Sector After two quarters of decline, activity in the construction sector rebounded in Q1 by 13.3% q-o-q saar, led by a pickup in public construction activities. Public residential construction grew 6.2% q-o-q saar, following strong take-up rates for HDB Build-to-Order projects. The public non-residential segment was supported by civil-engineering and institutional projects like the MRT Downtown Line and NUH Medical Centre. Meanwhile, construction of private residential buildings continued to record steady growth.

Construction activity grew in Q1 2011, following declines in H2 last year.

350 Index (Q1 2005=100), SA 300 250 200 150 100 50 2005 2006 2007 2008 2009 2010 2011
Q1

Non-residential Certified Payments Residential Certified Payments

Civil Engineering Certified Payments

Source: EPG, MAS Estimates

iii) Services Sector The services sector strengthened further in Q1 2011, registering growth of 8.8% q-o-q saar, following a 5.6% increase in the preceding quarter. Alongside the rapid growth in the domestic manufacturing industry, activity in some of the supporting trade-related services also intensified. Within the transport & storage segment, for instance, container throughput volumes expanded 9.2% q-o-q saar, underpinned by rising global trade flows. Meanwhile, buoyed by strong tourist arrivals, the tourism-related services sector surged in Q1 2011. In particular, the hotels segment continue to record robust growth, with hotel occupancy rates trending upwards to 85.9% sa, from 84.3% in Q4. Despite heightened uncertainty in global markets due to the Middle East/North Africa political crisis and earthquake in Japan, growth of the overall domestic financial sector accelerated in Q1, to 27.1% q-o-q saar, extending the 16.9% surge witnessed in Q4 2010. The expansion was underpinned by strength in lending activities. In particular, lending to businesses picked up pace alongside a step-up in economic activity, marking its sixth consecutive quarter of gains. The offshore lending segment was bolstered by firm non-bank loan growth to the region, as well as an increase in demand for funds from the advanced economies. In contrast, activity in the sentiment-sensitive cluster was capped by a reversal of sentiments in global markets. The region saw an outflow of funds for the ninth consecutive week, with a concomitant dampening effect on activity in the local bourse. Daily average turnover volumes in the local stock market declined by 6.5% q-o-q in Q1.

B. Labour Market
Further tightening of the labour market in Q1 2011 According to preliminary estimates, total employment expanded by 23,700 in Q1 2011, down from the seasonally-driven gains of 33,900 in Q4 2010. Hiring in services was reduced from 30,900 in Q4 2010 to 22,800 in Q1 2011 due to lower demand for workers in the hospitality-related segments. However, this was partially offset by the pickup in hiring in the financial services, business services and other services sectors, which together accounted for almost two-thirds of the jobs created in Q1 2011. Meanwhile, manufacturing reduced headcount by 500 while construction continued to expand employment modestly by 1,100 in Q1, primarily for the public-sector contracts. The seasonally-adjusted overall unemployment rate fell from 2.2% in December 2010 to 1.9% in March 2011. Similarly, the unemployment rate for the resident labour force declined from 3.1% to 2.7% over the same period. These rates are the lowest seen since Q4 2007. Reflecting the tight labour market, overall wages grew by 8.5% y-o-y in Q1 2011, up from 7.5% in the preceding quarter. The outlook for employment in the services sector remains bright, with a net-weighted 18% of firms projecting an increase in headcount in the latest Business Expectations Survey, compared to 15% in the preceding Survey. Employers in financial services are the most optimistic, with almost 40% expecting to hire in Q2. Manufacturers also intend to add workers in Q2, with hiring likely to be concentrated in transport engineering, chemicals and precision engineering.
The unemployment rate declined in March 2011.
80
Changes in Employment ('000)

3.6 3.2 2.8 2.4 2.0 1.6 2011 Q1

Per Cent, SA

60 40 20 0 -20 2005 2006 2007 2008 2009 2010

Goods Industry (LHS) Services Industry (LHS)

Unemployment Rate (RHS)

C. Inflation
CPI inflation rose in Q1 2011, and is forecast to ease in remaining quarters Headline CPI inflation increased to 5.2% y-o-y in Q1 2011, from 4.0% in Q4 2010, as sharp increases in car prices and accommodation costs were compounded by low base effects. In comparison, MAS Core Inflation, which excludes the costs of accommodation and private road transport, fell marginally from 2.1% in Q4 2010 to 1.9% in Q1 2011 due to the removal of television and vehicle radio license fees. In April, CPI inflation fell to 4.5%, mainly due to the governments disbursement of additional S&CC rebates, which was reflected in lower accommodation costs. Cars also contributed less to CPI inflation, given a significantly higher base a year ago when COE premiums surged. In contrast, MAS Core Inflation rose to 2.2% largely on account of higher salaries for domestic helpers.
CPI inflation fell to 4.5% in April.
8 7 6 YOY % Growth 5 4 3 2 1 0 -1 -2 2007 2008 2009 2010 2011 Apr

Overall CPI Inflation MAS Core Inflation

While the monthly CPI inflation can be volatile, the quarterly inflation rate is expected to have peaked in Q1 and will ease gradually over the course of the year as the base effects associated with car prices and accommodation costs dissipate. In comparison, MAS Core Inflation will remain broadly stable due to the offsetting effects of easing food price inflation and stronger price increases in oil-related items. For the whole year, CPI inflation is expected to come in at the upper half of the 3-4% forecast range while MAS Core Inflation is projected at 2-3%.

D. Balance of Payments
The surplus in the overall balance of payments moderated in Q1 2011 as the capital and financial account reversed to a net outflow position The overall balance of payments surplus moderated to $5.6 billion in Q1 2011, from $16 billion in the preceding quarter. This reflected the reversal in the capital and financial account to a net outflow position, even as the current account surplus widened. Gross capital inflows increased from $19 billion in Q4 2010 to $37 billion in Q1 this year. These inflows have been volatile, but at an average of $28 billion (36% of GDP) over the past five quarters, they were below the average of $37 billion (59% of GDP) per quarter in the previous period of sharp inflows from Q1 2006 to Q1 2008. The inflows in the latest quarter were driven by direct and other investments, while portfolio investment continued to be negative, suggesting that foreigners sales of local securities exceeded their purchases.
The overall balance of payments surplus moderated to $5.6 billion in Q1.
30 20 10 S$ Billion 0 -10 -20 -30 2005 2006 2007 2008 2009 2010 2011
Q1
Capital & Financial Account Current Account Overall Balance

Notably, while there has been some recovery in foreign appetite for local equity since the middle of 2009 following the Great Recession, investor sentiment has continued to fluctuate. Other investment gross inflows comprise both bank and non-bank flows. The latter accounted for the bulk of the increase in Q1 2011, in part reflecting ACU loans to non-bank residents.
The increase in gross financial inflows in Q1 was driven by direct and other investments.
Direct Investment Portfolio Investment Other Investment

60

40 S$ Billion

20

-20 2005 2006 2007 2008 2009 2010 2011

Q1

Even as gross inflows to Singapore are large, there have also been sizable gross outflows from the financial system, given our role as an international financial centre as well as the large presence of companies here with international operations. In fact, Singapore has typically recorded a net capital outflow position.

This was apparent in Q1 2011, as gross capital outflows surged to $51 billion from $17 billion in the preceding quarter, and exceeded gross inflows by $14 billion. There was a significant gross outflow of other investment from the non-bank private sector, partly arising from increased resident ACU deposits. Overall, the reversal to a net outflow position in the financial account in Q1 was driven by other investment, while net portfolio investment outflow also expanded. In comparison, there was an increase in the net inflow of direct investment to Singapore, reflecting a decline in outward investment by residents as well as the rise in gross foreign investment here. The current account surplus widened to $18 billion in Q1 2011 from $16 billion in the previous quarter. There was an increase in the goods surplus as exports rose more than imports amidst the continued improvement in external demand conditions. The services surplus also grew, reflecting a surge in transportation and other business services net receipts. Meanwhile, the income balance recorded a lower deficit, as the increase in income receipts exceeded that of payments.
On a net basis, the financial account recorded an outflow of $14 billion.
20 10 S$ Billion 0 -10 -20 -30 2005 2006 2007 2008 2009 2010 2011
Q1
Direct Investment Portfolio Investment Other Investment Financial Account

E. Outlook
G3 economies: Slower growth amidst increased uncertainty Amongst the G3 economies, growth in the US and the Eurozone is expected to slow in the near term, weighed down by the need for fiscal consolidation. In Japan, supply disruptions will continue to dampen economic activity in the next few months although reconstruction efforts will help growth to rebound in the later part of the year. In the US, growth is likely to moderate further, with monthly PMI readings for both manufacturing and services trending downwards since March. In addition, household spending is expected to weaken by more than currently implied by consumer surveys, on account of uncertainty in the external environment as well as domestic fiscal constraints. Nonetheless, the labour market has continued to improve, which should provide some offsetting support for private consumption. In April 2011, 244,000 jobs were added compared to an average of 157,000 in the previous six months, while initial jobless claims continued its decline. In 2011, US economic growth is projected to be around 2.7%, slightly below the 2.9% recorded last year. (Table 1) Sovereign debt issues remain a source of concern in the Eurozone, placing considerable headwinds on growth prospects. Following Greece and Ireland, Portugal became the third country to seek official assistance of 78 billion from the EU and IMF in May 2011. Greece, which was bailed out last year, has also failed to meet its fiscal reduction targets so far, making it unlikely to return to the market for funding in 2012 as originally assumed. If a second bailout package is not agreed upon, Greece may have to reschedule its existing debt. Meanwhile, the latest flash Eurozone PMI reading for May fell to a seven-month low, pointing to slower growth ahead. As a result, Eurozone GDP growth is forecast to come in at 1.7% in 2011, similar to the pace of expansion in 2010. In Japan, growth in the months ahead will continue to be stymied by supply chain disruptions as well as consumer pessimism. An industry survey published by the Ministry of Economy, Trade and Industry in late April indicated that more than 60% of manufacturing firms are still struggling to resolve the problem of parts and raw materials shortages, and that 70-80% of manufacturers will only be able to restore normal supplies in October. Meanwhile, the PMI activity index slipped to 45.7 in April from 46.4 in March, signalling a further deterioration in manufacturing output. Consumer sentiment also worsened in April, as households remained cautious in the aftermath of the earthquake and tsunami. Nevertheless, some signs have emerged that economic activity has bottomed out, with the latest Tankan 10

survey indicating that pessimism has eased amongst large manufacturers. In addition, reconstruction efforts in the later part of the year will provide a boost to growth. For the whole of 2011, GDP levels are not expected to exceed that of the previous year.
Table 1: Consensus Forecasts of GDP Growth 2010 Forecast 2011 Percent Industrial US Japan Eurozone UK NIE Hong Kong Korea Taiwan ASEAN Indonesia Malaysia Thailand Philippines China India * 2.9 4.0 1.7 1.3 7.0 6.2 10.9 6.1 7.2 7.8 7.3 10.3 8.5 2.7 0.0 1.7 1.6 5.3 4.4 4.6 6.3 5.2 4.2 5.1 9.3 8.0 3.2 2.8 1.7 2.2 4.8 4.5 5.1 6.5 5.5 4.9 5.3 8.9 8.5 2012

Source: CEIC and Consensus Economics, May 2011 * Fiscal year starting 1 April for 2011 and 2012 forecasts.

Regional economies: Domestic demand helps shore up growth In Asia ex-Japan, growth will moderate towards trend rates this year, following the surge last year. Both domestic and external demand are expected to soften, following the impact of policy tightening in the regional economies on economic activity and a slower pace of expansion in key US and Eurozone export markets. Growth will also be temporarily dampened by disruptions to cross-border production networks, particularly in countries with close links to Japan. This is the case for the electronics and automotive industries in Thailand, the Philippines and Indonesia, which depend on Japan as a key source of parts and components. Nevertheless, Asia ex-Japan has entered into a self-sustaining phase of growth, as the export upturn since late 2009 translated into higher incomes and a pickup in household spending and investment. In the resource-rich ASEAN economies, incomes were further boosted by the rise in commodity prices. Thus, private consumption and investment in the region are expected to remain firm. In addition, economies such as South Korea and Taiwan that compete directly with Japan in industries such as electronics and automotive products could stand to gain increased market share and firmer pricing in the short-term. In the aftermath of the natural disaster in Japan, downstream companies will need to secure substitutes 11

for Japanese parts and components and diversify input sources to guard against future disruptions. In China, leading indicators point to an imminent moderation in activity. In May, the preliminary HSBC China Purchasing Managers Index declined to its lowest reading in 10 months, as factory orders ebbed. The overall PMI fell to 51.1 while the manufacturing output sub-index slipped to 50.9, signalling weaker expansion ahead. Nonetheless, domestic demand is holding up, as indicated by a bounce in consumer confidence. Overall, Chinas GDP growth is expected to slow to 9.3% in 2011, from 10.3% in 2010. With Asia ex-Japan at an advanced stage of the business cycle, inflationary pressures have picked up as economies begin to hit capacity constraints. Over the past few months, core inflation measures in Korea, Thailand, and Indonesia have begun to trend upwards. At the same time, elevated food prices have exerted further upward pressure on headline inflation, especially given the fairly significant weight of food in the CPI baskets of Asian countries. However, if growth in the region moderates to more sustainable rates as envisaged, and barring further severe disruptions to food and oil supplies, headline inflation in the region will likely peak this year and moderate in 2012. In the US and the Eurozone, capacity utilization rates have been rising steadily, although they are still below pre-crisis levels. Notwithstanding this, headline inflation is expected to ease in the coming quarters, given the recent easing in oil prices. In Japan, price pressures will likely stay muted due to the negative demand shock from the Tohoku disaster. IT outlook: Resilience in end demand There are some emerging signs of improvement in global IT demand. Corporate demand from the US re-emerged in Q4 2010, following a pause in the preceding quarter, suggesting that the ongoing PC replacement cycle remains intact. Enterprise spending is expected to continue this year, driven by the upgrading of ageing systems as well as an increased demand for IT network products. Meanwhile, US retail sales of electronics products edged up 0.9% q-o-q in Q1 2011, halting three consecutive quarters of sequential decline. New products in the pipeline, particularly from strong growth segments such as tablets and smartphones, should generate fresh consumer interest.

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Notwithstanding the recent spate of macro-tightening measures, demand in the emerging markets has remained resilient, with electronics retail sales in China continuing to record positive gains in Q1 2011, albeit at a more moderate pace. In addition, the sustained rise in enterprise formation in regional markets such as China and India should provide further support to corporate IT sales. The more positive outlook in the end markets has benefited the mid-stream semiconductor segment. Global chip sales recorded an 8.8% q-o-q sa rise in Q1 2011, on the back of a 0.5% uptick in Q4 2010, underpinned by expansions in the Americas, Europe and Asia ex-Japan. This has spilled over to the upstream capital equipment segment as well. Based on SEMI statistics, the US chip equipment industrys book-to-bill ratio has risen steadily over the last few months, from 0.85 in January to 0.98 in April, reflecting manufacturers confidence in global IT demand prospects.
Global chip sales have recovered in recent quarters.
20 15 QOQ SA % Growth 10 5 0 -5 -10 -15 2009 Q2 Q3 Q4 2010 Q2 Q3 Q4 2011
Q1

Source: iSuppli

Given Japans importance as a midstream supplier in the regional cross-border production network, there have been concerns over potential supply disruptions in the wake of Japans earthquake on 11 March. However, the disruptions have been mitigated by two factors. First, semiconductor firms have built up sufficient inventory buffer to withstand short-term disruptions in production. Second, the semiconductor industry is fairly flexible and some production has been diverted to other centres within Japan or outside the country. Nonetheless, some limited impact from demand weakness and supply-side disruptions could mean that the global and correspondingly the domestic manufacturing sector could hit a soft patch in Q2, but should recover in the second half of the year. Already, the majority of Japan electronics manufacturers have reported that they have resumed normal operations. On balance, improving demand in the developed economies and continued strength from emerging markets should provide sufficient support to the global IT industry this year.

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Domestic Outlook: Economy expected to expand by 5 to 7% in 2011 After recording a modest rebound in Q4 2010, growth momentum in the Singapore economy strengthened in Q1 2011. Unlike the initial recovery phase where GDP growth was driven by transitory factors, such as inventory restocking, the step-up in economic activity in Q1 reflected an improvement in end demand in Singapores key export markets. While there are continuing uncertainties, the external environment remains fairly conducive for growth in the coming quarters. Against this backdrop, the domestic manufacturing sector should continue to be supported by the moderate turnaround in the global IT industry. Demand for IT products in the advanced economies has picked up in recent months, and has remained fairly firm in the emerging markets. Supply-side expansions in the domestic electronics and chemical segments will also provide further support. This should in turn sustain growth in the trade-related services. Financial services will continue to be anchored by gains in intermediation, and the sentiment-sensitive industries could provide a fillip to growth, with near-term indicators reflecting a pickup in confidence over steady growth in Asia ex-Japan. The economic fallout from the earthquake disaster in Japan is likely to be limited at this stage, cushioned by adequate inventory and a switch to alternative suppliers. This assessment stems from the fact that Japan is a relatively small end market and import source for Singapores goods and services. Moreover, the negative spillover effects from the crisis could be offset by a rebound later this year as rebuilding in Japan gets underway. In previous episodes of non-economic shocks such as the SARS outbreak and the September 11 terrorist attacks in the US the impact on the Singapore economy was short-lived and the subsequent turnarounds quite sharp. Anchored by the strong performance in Q1, Singapore's GDP growth is expected to come in at 5-7% for the whole of 2011, supported by a moderate but broad-based expansion across a range of industries. Nevertheless, this assessment is dependent on a relatively sanguine macroeconomic environment in the key industrialised countries as well as an effective containment of the nuclear risks in Japan and the political unrest in the MENA countries.

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F. Macroeconomic Policies
A further tightening in policy stance to ensure price stability over the medium term i) Monetary Policy Following the rapid and broad-based economic expansion in Q1 2011, there could be a temporary pullback in domestic economic activity in Q2. While the immediate outlook has been clouded by uncertainty stemming from the series of negative shocks to the global economy, resilient regional demand and steady recovery in the advanced economies will continue to drive Singapores growth and sustain its economic activity at a high level. Meanwhile, inflationary pressures remain strong given the high rates of resource utilisation in the economy. Specifically, the tight labour market could result in stronger wage growth and a greater degree of pass-through to services costs, and eventually higher CPI inflation.
In April 2011, MAS re-centred the policy band upwards. The policy band was re-centred below the prevailing level of the S$NEER, with no change to its slope or width.
108

Appreciation
Index (2 Oct 2009 = 100) 106

104

102

100

Depreciation
98 Oct 2009 Jan 2010 Apr Jul Oct Jan 2011 Apr

indicates release of Monetary Policy Statement

Given these upside risks to inflation, MAS re-centred the S$NEER policy band upwards in April 2011. The policy band was re-centred below the prevailing level of the S$NEER, with no change to its slope or width. MAS latest move took into account the impact of the pre-emptive tightening moves in April and October 2010, which would continue to have a restraining effect on economic activity and prices over the rest of this year. ii) Fiscal Policy The Singapore economy registered record GDP growth of 14.5% in 2010. As such, the key measures of the Resilience Package, put in place in 2009 to help businesses and households tide over the economic downturn, have been fully phased out as of January this year. The overall budget deficit for FY2010 came in at $0.3 billion (0.1% of GDP), significantly lower than the $3.0 billion projected in 15

2010, on the back of higher revenues from the better-than-expected performance of the economy. Budget 2011, announced on 18 February, builds on the medium-term policy agenda initiated by Budget 2010, with additional initiatives aimed at restructuring the Singapore economy in order to enhance productivity over the medium to long term. These measures represent continued steps towards implementing the recommendations charted out by the Economic Strategies Committee (ESC) to support the economy's growth in the next phase of its development. They can be broadly divided into three categories: first, the government has committed $2.1 billion this year in the form of tax benefits, grants and training subsidies to help companies and workers to innovate and deepen their skills and expertise. Second, measures to enable companies to develop growth capabilities, commercialise their R&D and expand abroad were enhanced. Third, the government introduced initiatives to improve the softer aspects of the quality of life in Singapore and make growth more inclusive. These measures have been especially geared towards lower-skilled workers, the elderly as well as the lower-to-middle income households. At the same time, Budget 2011 also contained one-off, targeted measures to assist firms facing rising business costs and to help households preserve purchasing power amidst higher inflation. These include rebates on income taxes, service and conservancy charges, and utility bills. For FY2011, the government is expecting the budget balance as a percentage of GDP to be close to zero, with a small overall budget surplus amounting to around $0.1 billion. Summary of Fiscal Position
FY 2009 $billion Operating Revenue Total Expenditure Operating Expenditure Development Expenditure Primary Surplus/Deficit (-) Add: NII/NIR Contribution Less: Special Transfers Budget Surplus/Deficit (-) 39.5 41.9 30.9 11.0 -2.3 7.0 5.5 -0.8 % of GDP 14.2 15.1 11.1 4.0 -0.8 2.5 2.0 -0.3 FY 2010 Revised $billion 45.5 46.4 34.1 12.3 -0.9 7.8 7.2 -0.3 % of GDP 14.6 14.9 10.9 3.9 -0.3 2.5 2.3 -0.1 FY 2011 Budgeted $billion 48.1 47.1 35.9 11.2 1.0 7.8 8.7 0.1 % of GDP 14.2 13.9 10.6 3.3 0.3 2.3 2.6 0.0

Note: Figures may not tally due to rounding. Source: Ministry of Finance.

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Selected Indicators
GENERAL INDICATORS, 2010
Land Area (Sq km) Total Population ('000) Labour Force ('000) Resident Labour Force Participation Rate (%)
* Refers to resident population aged 15 years and over.

712.4 5,076.7 3,135.9 66.2

Literacy Rate* (%) Real Per Capita GDP (US$) Gross National Savings (% of GNI)

95.9 41,109 47.8

COMPONENTS OF NOMINAL GDP SECTORAL (% of GDP), 2010

Manufacturing Financial Services Business Services Construction Transport & Storage Information & Communications Wholesale & Retail Trade Hotels & Restaurants 22.2 11.9 14.0 4.5 8.6 3.6 16.5 2.2

COMPONENTS OF NOMINAL GDP EXPENDITURE (% of GDP), 2010

Private Consumption Public Consumption Private Gross Fixed Capital Formation Public Gross Fixed Capital Formation Increase in Stocks Net Exports of Goods & Services Statistical Discrepancy 37.9 10.7 21.0 4.0 -1.2 28.1 -0.5

MAJOR EXPORT DESTINATIONS (% SHARE), 2010

Total Exports (S$ Billion) Malaysia Hong Kong China Indonesia USA 478.8 11.9 11.7 10.3 9.4 6.4

MAJOR ORIGINS OF IMPORTS (% SHARE), 2010

Total Imports (S$ Billion) Malaysia US China Japan Indonesia 423.2 11.7 11.2 10.8 7.9 5.4

ASEAN NIEs EU
Source: IE Singapore

30.3 19.4 9.8

ASEAN EU NIEs

24.0 12.3 12.7

MAJOR DOMESTIC EXPORTS BY COMMODITY (% SHARE), 2010

Domestic Exports (S$ Billion) Mineral Fuels Electronics Chemicals Machinery & Transport Equipment (ex. Electronics) Manufactured Articles Manufactured Goods
Source: IE Singapore

MAJOR IMPORTS BY COMMODITY (% SHARE), 2010

248.6 30.2 26.1 17.5 12.0 7.7 2.8 Total Imports (S$ Billion) Electronics Mineral Fuels Machinery & Transport Equipment (ex. Electronics) Manufactured Articles Chemicals Manufactured Goods 423.2 29.1 27.3 17.4 7.0 6.8 6.3

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OVERALL ECONOMY GDP at current prices (S$ bil) GDP (US$ bil) Real GDP Growth (YOY % change) Real GDP Growth (QOQ SAAR % change) By Sector (YOY % change): Manufacturing 1/ Electronics 2/ Non-electronics 2/ Financial Services Business Services Construction Transport & Storage Information & Communications Wholesale & Retail Trade Hotels & Restaurants By Expenditure Component (YOY % change): Consumption Private Public Gross Fixed Capital Formation Private Public External Demand TRADE Total Exports, fob (YOY % change) Non-Oil Domestic Exports Re-Exports Total Imports, cif (YOY % change) WAGE-PRICE INDICATORS Unemployment Rate (SA,%) Average Nominal Wages (S$ per month) Consumer Price Index Inflation (YOY % change) MAS Core Inflation (YOY % change) FINANCIAL INDICATORS 3/ S$ Exchange Rate Against: (end-period) US Dollar 100 Japanese Yen Euro Interest Rates (end-period, % p.a.) 3-month Fixed Deposit Rate 3-month Domestic Interbank Rate Prime Lending Rate Money Supply (end-period) Broad Money, M2 (YOY % change) Straits Times Index (end-period) YOY % change GOVERNMENT BUDGET 4/ Operating Revenue (S$ mil) Total Expenditure (S$ mil) Operating Expenditure Development Expenditure Primary Surplus/Deficit (S$ mil) % of GDP BALANCE OF PAYMENTS Current Account Balance (% of GDP) Goods Balance Services Balance Income Balance Current Transfers Capital & Fin Account Balance (% of GDP) Financial Account Balance (% of GDP) Direct Investment Portfolio Investment Other Investment Overall Balance (% of GDP) Official Foreign Reserves (US$ mil) 5/ Months of Imports
Source:
1/ 2/ 3/ 4/

2009 266.7 183.3 -0.8 na -4.2 -8.5 -2.2 4.3 4.3 17.1 -9.0 1.0 -6.0 -1.6 0.9 0.2 3.5 -2.9 -5.6 18.5 -8.1

2010 303.7 222.7 14.5 na 29.7 35.7 27.2 12.2 5.9 6.1 6.0 2.9 15.1 8.8 5.7 4.2 11.0 5.1 3.5 15.0 19.2

Q1 09 62.1 41.1 -8.4 -8.9 -23.8 -36.6 -18.4 -4.0 5.7 25.1 -12.0 1.6 -12.0 -4.2 -3.3 -2.8 -4.6 -12.3 -16.4 21.0 -18.0

Q2 09 64.5 43.8 -1.3 18.6 -0.5 -19.4 8.3 3.0 3.6 18.5 -11.9 1.0 -9.6 -4.2 -0.9 -2.9 10.2 -5.3 -7.8 18.8 -13.3

Q3 09 68.3 47.5 2.1 13.3 7.5 -1.2 11.8 6.3 3.5 11.4 -10.1 0.8 -5.2 -0.1 3.4 2.3 7.7 0.2 -1.5 12.8 -7.7

Q4 09 71.8 51.5 4.6 -1.5 2.4 28.0 -8.0 12.2 4.4 14.9 -1.6 0.7 3.5 2.1 4.9 4.4 6.6 7.3 5.2 21.1 7.9

Q1 10 73.0 52.0 16.4 39.9 37.2 66.4 27.6 18.9 6.1 9.7 6.6 2.2 16.9 7.2 7.7 6.1 12.0 11.1 9.6 19.4 21.7

Q2 10 76.0 54.7 19.4 29.7 45.2 52.8 42.6 9.9 7.1 11.4 8.5 2.9 18.9 12.5 5.6 5.2 7.6 -1.7 -4.6 19.7 24.4

Q3 10 76.4 56.3 10.5 -16.7 13.7 26.1 8.3 9.7 6.0 6.7 5.2 3.4 14.4 8.2 3.7 1.5 11.8 5.8 4.0 17.2 19.8

Q4 10 78.2 60.0 12.0 3.9 25.5 14.7 31.9 10.9 4.5 -2.0 3.8 2.9 10.8 7.5 5.8 4.3 11.3 5.7 5.8 5.2 12.1

Q1 11 81.2 63.5 8.3 22.5 13.1 11.9 16.3 11.3 4.3 2.4 4.9 2.9 4.5 7.0 2.1 5.0 -5.0 -9.5 -13.3 10.0 8.4

Mar-11 na na na na 26.3 6.0 34.9 na na na na na na na na na na na na na na

Apr-11 na na na na -9.5 -8.0 -10.0 na na na na na na na na na na na na na na

-18.0 -10.6 -16.6 -21.0

22.4 22.8 20.5 18.8

-27.8 -25.6 -24.1 -27.6

-25.4 -14.5 -23.8 -28.4

-20.0 -7.8 -17.9 -22.8

4.9 8.2 1.9 -2.7

28.2 23.1 24.5 25.5

29.1 27.6 24.6 26.4

20.0 23.7 20.9 15.6

14.5 17.6 13.0 9.7

13.4 12.3 7.2 10.2

12.7 9.9 5.6 17.2

5.0 -1.8 3.2 4.5

3.0 3,872 0.6 0.0

2.2 4,089 2.8 1.5

3.2 4,155 3.4 2.2

3.2 3,609 0.2 0.0

3.3 3,562 -0.3 -0.7

2.3 4,160 -0.8 -1.4

2.2 4,310 0.9 0.1

2.2 3,819 3.1 1.7

2.1 3,754 3.4 2.2

2.2 4,474 4.0 2.1

1.9 4,677 5.2 1.9

na na 5.0 1.8

na na 4.5 2.2

1.4034 1.5194 2.0163 0.25 0.69 5.38 11.3 2,897.6 64.5

1.2875 1.5798 1.7120 0.19 0.44 5.38 8.6 3,190.0 10.1

1.5194 1.5450 2.0153 0.32 0.69 5.38 11.5 1,700.0 -43.5

1.4498 1.5115 2.0464 0.27 0.69 5.38 12.9 2,333.1 -20.8

1.4141 1.5752 2.0674 0.26 0.69 5.38 11.3 2,672.6 13.3

1.4034 1.5194 2.0163 0.25 0.69 5.38 11.3 2,897.6 64.5

1.4028 1.5016 1.8789 0.22 0.69 5.38 8.8 2,887.5 69.9

1.4013 1.5822 1.7113 0.21 0.56 5.38 7.3 2,835.5 21.5

1.3175 1.5760 1.7919 0.20 0.50 5.38 8.2 3,097.6 15.9

1.2875 1.5798 1.7120 0.19 0.44 5.38 8.6 3,190.0 10.1

1.2617 1.5248 1.7828 0.18 0.44 5.38 8.7 3,105.9 7.6

1.2617 1.5248 1.7828 0.18 0.44 5.38 8.7 3,105.9 7.6

1.2277 1.5055 1.8207 0.18 0.44 5.38 11.0 3,179.9 6.9

37,872 40,483 29,871 10,612 -2,611 -1.0

44,581 44,049 32,755 11,295 532 0.2

8,756 13,073 10,395 2,678 -4,317 -7.0

10,000 7,874 5,269 2,604 2,126 3.3

10,621 9,177 6,695 2,482 1,444 2.1

8,495 10,359 7,512 2,847 -1,864 -2.6

10,430 14,509 11,433 3,077 -4,079 -5.6

11,912 7,888 5,346 2,542 4,024 5.3

12,395 10,360 7,328 3,032 2,035 2.7

9,845 11,293 8,648 2,644 -1,447 -1.9

11,851 15,205 11,365 3,840 -3,353 -4.1

na na na na na na

na na na na na na

19.0 15.9 7.7 -2.4 -2.2 -14.6 -14.5 -1.7 -8.5 -4.3 6.2 187,809 9.2

22.2 20.9 7.1 -3.7 -2.2 -3.1 -3.0 8.5 -9.8 -1.6 18.9 225,754 8.7

18.5 12.2 6.3 2.5 -2.4 -28.0 -27.8 -5.8 -13.7 -8.4 -5.8 166,251 6.8

18.4 16.0 6.6 -2.0 -2.2 -19.1 -18.9 -0.6 -8.5 -9.7 1.6 173,191 7.8

17.3 16.9 7.3 -4.8 -2.1 -7.8 -7.6 -2.2 -12.0 6.5 10.3 182,039 9.0

21.7 18.2 10.3 -4.7 -2.1 -5.6 -5.5 1.2 -0.6 -6.1 16.7 187,809 9.2

20.8 16.9 7.8 -1.9 -2.1 6.2 6.3 2.5 -13.5 17.3 28.8 197,112 8.9

22.9 22.0 6.9 -3.9 -2.1 -2.9 -2.7 10.7 -5.8 -7.6 18.0 199,960 8.5

25.0 24.1 7.3 -4.2 -2.2 -17.4 -17.2 9.5 -8.9 -17.8 8.2 214,662 8.6

20.1 20.6 6.5 -4.8 -2.2 1.9 2.0 10.9 -11.2 2.3 21.1 225,754 8.7

21.8 20.5 7.5 -4.0 -2.3 -17.3 -17.2 16.9 -11.5 -22.6 6.9 234,205 8.6

na na na na na na na na na na na 234,205 8.6

na na na na na na na na na na na 242,524 8.8

Monthly data from Index of Industrial Production, EDB Data from Index of Industrial Production, EDB Straits Times Index from SGX. All other indicators from MAS. Ministry of Finance

5/ MAS na: Not available

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