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4D/Toto/Score
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Government lowers 2001 Growth Forecast to around
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-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 |
The End
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