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Performance of the Singapore economy in 3rd Quarter 2004


CHARTS 1 - 9     Annex

Labour Market

Total employment rose by 16,600 in 3Q04, the strongest quarterly gain in three and a half years. Employment in both the goods producing and services producing industries grew more strongly than in 2Q04. A total of 7,200 jobs were added in the goods producing industries, compared with 2,900 previously. The services producing industries added 9,400 workers, higher than the 8,000 added in the earlier quarter. Retrenchments also eased to a new low, numbering 1,700 – a reduction of 17% from the previous quarter. Strong employment creation led to a significant decline in unemployment. The seasonally-adjusted unemployment rate fell to 3.4%, from 4.5% in June.

Labour Productivity

The moderation of economic growth in 3Q04 led to a slower rise of total labour productivity of 5.0%, compared with the 11.0% recorded in 2Q04. The construction sector suffered the largest fall in labour productivity, declining by 6.8%. The business services and financial services sectors saw smaller declines of 1.1% and 0.5% respectively. The largest gains were seen in the wholesale and retail trade sector (12.9%), transport & communications sector (7.7%), and the manufacturing sector (5.6%).

Business Costs

The unit labour cost (ULC) index continued its downward trend, posting its fifth consecutive decline of 4.9% in 3Q04, after falling by 10.0% in the second quarter. The unit business cost index (UBC) of manufacturing posted a smaller drop of 1.3% in 3Q04, compared to the 5.9% decline in the quarter earlier. During the quarter, the manufacturing ULC fell by 5.8%, after falling by 15.3% in the previous quarter. Services cost posted a rise of 1.4%, as the weighted rise in the costs of trade and transport, financial services and other services outweighed continued declines in premise rentals, warehousing rates and telecommunications charges. Government rates and fees also rose by 4.5%, up slightly from the 4.4% gain recorded 2Q04.

External Trade

Singapore’s external trade grew a brisk 27.8% in 3Q04, following the growth of 26.5% in 2Q04. Total exports expanded by 25.2%, on the back of a 25.7% gain in 2Q04. This mainly reflected the robust growth of domestic exports, which rose to 25.3% from 22.8% in 2Q04. The rate of NODX growth rose to 20.8%, from 21.1% in 2Q04. On the other hand, the rates of growth in re-exports and non-oil imports (excluding aircraft and ships) moderated from the previous quarter. In volume terms, total trade continued to turn in a strong performance of 25.0%, after a 26.0% rise a quarter earlier.

Investment Commitments

Fixed asset investments amounting to $1.9 billion were committed in the manufacturing sector in 3Q04, down from $2.2 billion in 2Q04. When fully implemented, these projects are expected to generate a value added of $1.3 billion and create about 2,300 jobs, of which 53% are for skilled professionals and workers. Investment commitments in the services industries promoted by EDB in 3Q04 amounted to $511 million in total business spending. Upon realisation, these projects will generate a value added of $826 million and create about 2,300 jobs, of which 81% are for skilled professionals and workers.

Balance of Payments

The current account surplus rose to $14.4 billion in 3Q04, up from $12.2 billion in 2Q04, as a result of higher surpluses in both the goods and services accounts, even as the income balance recorded a larger deficit. The net outflow in the capital and financial account increased to $16.4 billion, up from $9.7 billion in 2Q04. This largely reflected the rise in direct investment abroad.

Singapore's overall balance of payments turned in a larger surplus of $0.8 billion in 3Q04, compared to $0.3 billion in 2Q04. Nevertheless, the official foreign reserves fell to $173 billion in the quarter (equivalent to 7.8 months of current imports), from $175 billion in the previous quarter.

Consumer Price Inflation

The CPI moderated to 1.7% in 3Q04, down slightly from 1.9% in 2Q04. Costs of healthcare (5.9%) and education (3.9%) saw the largest gains. Both the cost of food and miscellaneous items rose by 2.3% each. The higher food prices were due to the recent poultry ban. The cost of transport & communications also increased by 1.8%, as a result of dearer electricity and petrol due to higher oil prices. Helping to keep a lid on inflation, clothing prices and housing cost declined by 0.5% and 0.3% respectively.


Outlook for 2004 and 2005

The Singapore economy expanded by 9.1 per cent in the first nine months of 2004. Other than strong external demand for Singapore’s exports, which accompanied the exceptional global economic growth this year, the headline growth figure also reflected the economic recovery from the impact of SARS.

External demand is expected to remain supportive of economic growth in the near-term. While the rate of global economic growth is expected to ease in 2005, the IMF has projected that it would remain well above levels seen between 2001 and 2003. The robust rates of growth seen in the US and in Japan this year are likely to be followed by growth at more sustainable rates, driven mainly by improving labour market conditions in these economies. Economic growth in the EU is also seen to moderate slightly next year, as exports grow at an easier pace.

Similarly, economic growth rates in key Asian economies are projected to ease in 2005. China, an important driver of global economic growth in 2004, is likely to succeed at achieving more sustainable rates of economic growth in the next few quarters.

Slower growth is also expected in the other major Asian economies, as the pace of export growth eases in line with more moderate world demand for electronics. Worldwide semiconductor sales are expected to remain healthy for the rest of 2004, but growth will likely slow sharply in the following year.

An important risk factor to economic growth in 2005 is developments in oil prices. Due to the small spare capacity in the oil industry, a significant production disruption in any of the key producer countries could send prices sharply higher. While the world economy is better able to handle the impact of higher oil prices than in the 1970s, further increases could dampen growth nevertheless.

On the domestic front, the recent improvement in the unemployment situation and higher asset prices should provide support for domestic consumption going forward. Growth of domestic investment, however, is likely to ease, partly due to the slowdown in global electronics demand. Forward looking indicators in Singapore are also pointing to slowing growth in the near term, reflecting the uncertain outlook for global economic conditions.

Barring unforeseen circumstances, the MTI has narrowed the 2004 economic growth forecast from 8.0-9.0 per cent to 8.0-8.5 per cent. The narrowing of the forecast to the lower band reflects the slower growth in the third quarter as a result of recent developments such as lower-than-expected biomedical output as well as the uncertainty of higher oil prices. It also reflects the possibility of a further moderation of growth in the fourth quarter. For 2005, the preliminary forecast for economic growth remains at 3.0-5.0 per cent, in line with an expected deceleration of the global economy and falling semiconductor sales.


1 The y-axis of the chart on business expectations represents the net weighted balance of companies that predict an improvement in business situation. This is derived from the weighted percentage of companies in the survey that predict better business minus the weighted percentage of companies that predict worse business.


Source: Ministry of Trade and Industry Press Release 17 Nov 2004




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