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Horoscope: ASTROLOGY ZONE® by Susan Miller        Singapore Time

 

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  4D/Toto/Score

  Government lowers 2001 Growth Forecast to around

      -3% (cont'd)

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  The Japanese economy contracted by 0.8% in the second quarter of the year, following a mere 0.1% growth in the first quarter, and is likely to enter into its fourth recession in a decade. The Bank of Japan reports a substantial decline in production, stemming from a fall in exports, and predicts lower income and rising unemployment. The latest Tankan survey revealed one of the steepest fall in confidence ever registered by the survey among manufacturing companies. Net exports continue to decline, reflecting not only a slowdown in overseas economies but also sluggish demand for IT-related goods within Japan itself. Business fixed investment is decreasing noticeably. Housing investment remains sluggish and public investment is down. Meanwhile, private consumption, the largest component of the economy, remains generally flat.

  The EU is also adversely affected. Economic growth in the EU slowed to 0.1% in the second quarter of the year, down from a first-quarter growth rate of 0.5%. Although household spending managed a 0.7% rise, both domestic and external demand have slowed markedly, hit by a 1.4% slide in exports and a 0.7% fall in gross fixed capital formation - a sign of low business investment. GDP growth of Germany, the largest economy in the EU, was zero in the second quarter of 2001, down from 0.4% in the first quarter. The sharp weakening of the German economy, further aggravated by the September 11 attacks, is particularly worrying. There are also signs that the EU’s service sector, the pillar of growth so far this year, has started to contract. It thus looks as if the EU is also heading towards a recession.

  In Asia, the growth of many countries has been repeatedly marked down because of the significant dependence on exports to developed economies. For example, the IMF has recently downgraded the 2001 growth forecasts for Asean-4 (comprising Indonesia, Malaysia, Philippines and Thailand) from 3.4% to 2.4%. With anti-US sentiments growing in some of these countries, business confidence is bound to be affected, which means that the outlook is even more pessimistic than what the IMF has forecast.

  Meanwhile, the world semiconductor industry continues on the downward spiral that began at the end of 2000. New orders, inventories and prices for most products continue to decrease. Worldwide semiconductor sales declined by 42% in August, following a decline of 37% in July. Industry analysts have downgraded their forecasts yet again. Gartner Dataquest expects global semiconductor sales to fall by 30% this year, down sharply from +33% in 2000. This decline is due to continuing weak demand in the PC, storage, communications and industrial test/manufacturing equipment sectors. The global DRAM industry is expected to plunge by a record 55% this year, down from +36% in 2000. The industry is anticipated to remain weak till at least the first half of 2002.

  While economists and credit-rating agencies continue to make forecasts for their clients, all know that these forecasts are at best guesses about the future. With September 11, there is a trend break and we are facing major uncertainties. No one knows for sure how the near-term future will look like. The United States has launched attacks on Afghanistan but it is still not clear how the war will unfold, how long it will last and which other countries will be affected.

  An Asian Wall Street Journal article on 28 September noted that many economists were wary of making projections in view of the uncertainty. Financial markets have become more risk averse and consumers are more reluctant to spend. Air travel has significantly reduced, as business executives travel less and fewer business deals are made. As a result, many airlines and many other companies have started retrenching staffs. The number of US workers filing first time applications for unemployment benefits in mid September had reached a 9-year high, due to job dislocations as a result of the attacks. With the start of the US attacks, not only can we expect the terrorists to retaliate in different parts of the world, the reaction of the Islamic world is also hard to predict. US Defence Secretary Donald Rumsfeld has already warned that this is a war without a clear beginning or a clear ending, that we must expect it to be prolonged and that it will involve not only soldiers in desert fatigues, but also bankers in pin stripes and programmers in grunge.

SINGAPORE’S ECONOMIC PERFORMANCE

  Against this backdrop, let me now talk about Singapore’s economic performance in the third quarter and our analysis of the future. The advance estimates show that gross domestic product (GDP) in the third quarter continued to fall in real terms on a year-on-year basis in 3Q01 by 5.6%. In annualised quarter-on-quarter terms, the economy fell by 9.9%, after declining 10.4% in both 1Q01 and 2Q01.

  The biggest drag came from manufacturing. Singapore's manufacturing output tumbled 21 per cent in August - the sharpest fall since the 1985 recession. Electronics output declined sharply by a record 37% in August, compared with -33% in July.

  External demand, historically the key driver of GDP growth, contracted amid the global economic slowdown and persistent slump in electronics demand. Non-oil domestic exports remained in negative territory, contracting by 30% in August. Non-oil retained imports (excluding transport equipment), a short-term leading indicator, also continued to contract, by 27% in August.

  The sharp economic downturn has weakened the labour market. Total employment creation moderated to only 3,300 in the second quarter of 2001, compared to 23,200 in the previous quarter and 29,700 in the same period last year. The seasonally adjusted overall unemployment rate edged up from 2.4% in March to 2.6% in June 2001 and 3.8% in September 2001 (flash estimate). Among residents, the unemployment rate rose from 2.6% in March to 3.0% in June 2001 and 4.0% in September 2001 (flash estimate).

  Some 15,600 workers were on short work-week or temporary lay-off in the second quarter (about two-thirds were from electronics industry), representing a more than three-fold increase from 3,600 in the previous quarter.

  Retrenchment (based on a survey of private sector establishments employing at least 25 workers) in the second quarter had worsened. 5,631 workers were retrenched in the second quarter, compared to the 3,248 laid off in the previous quarter. In the first six months of this year, 8,879 jobs were shed, with about two-thirds from the manufacturing sector. In the last 3 months, more companies and financial institutions have announced retrenchments, including DBS, Compaq, Agilent, SIA and United Airlines. The services sectors are also affected by the loss of investor and consumer confidence. We expect job losses in Singapore this year to exceed 20,000 with not many new jobs created.

  The near-term outlook for the Singapore economy is therefore bleak. Even before the terrorist attacks, the composite leading index, which leads economic activity by 2 to 3 quarters, fell by 4.9 % in 2Q01 over the previous quarter and by a further 0.6% in August (preliminary estimate), indicating continued weakness through to the end of the year. The attacks and the resulting uncertainty have made the situation much worse, removing all hopes of an early recovery.

  MTI is therefore downgrading the 2001 growth forecast from 0.5-1.5 % to around –3%. We started the year forecasting a growth rate of 5-7%. That was in a totally different world.

  The outlook for next year is highly uncertain. In view of the sharp economic decline in the second half of 2001, year-on-year growth in the first half of 2002 is likely to stay negative. However, growth in the second half of next year may turn positive depending on the global situation. No one knows and we must not pretend to know more than we do. At this stage, our preliminary estimate is in the range of –2 to +2%, centred on zero growth. We have broadened the range from the usual 2 percentage points to 4 percentage points to reflect the uncertainty.

  We are finalising the details of a major off-budget package of measures to address the current economic situation, which DPM BG Lee Hsien Loong will announce in Parliament on 12 October. The substantial support measures will help companies cut cost and reduce the need to make deep cuts in their operations. This should allow more workers to keep their jobs even though overall unemployment is bound to increase.

  To tackle these problems, our morale must stay high. The Government will help businesses and workers affected by the downturn especially those who are retrenched. Because of prudent budgeting, we have the resources to do so. We are in a much stronger position now than in 1974, during the economic crisis brought about by the oil shock. Our people are better educated. Our infrastructure is world class. Most importantly, we have become more united as a people. We weathered the oil crisis of 1974, the economic downturn of 1985-6 and the Asian financial crisis of 1997-8 well. In fact, we emerged stronger after each crisis. We will do the same if we again rally together as a nation and do whatever needs to be done to stay competitive.

Singapore Government Press Release
Media Division, Ministry of Information and The Arts

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