Singapore: From Economic Powerhouse to The Sick Man of ASEAN?
Singapore ‘s economy contracted by 0.6% in the first quarter of 2013 compared with the corresponding quarter of 2012. On a quarter-on-quarter seasonally adjusted annualized basis the economy contracted by 1.4%. Since year-on-year growth is now negative does that mean we are now officially in recession?
No. The accepted convention for defining a recession is two consecutive quarters of negative growth. And thanks to some deft footwork by the Statistics Department the government has avoided that label being applied to the economy. The result is that technically Singapore has so far been spared a double dip recession even though many Singaporeans might feel as though a thief has been double dipping from their pockets.
Singapore was in fact only saved from a technical recession by the downward revision of GDP growth in the first and third quarters of the year. Initial estimates of GDP growth at a quarter-on-quarter seasonally adjusted annualized rate in Q1 2012 were 9.8% but this was revised down to 9.5% in the fourth quarter revisions. Similarly a decline of -1.5% on an equivalent basis in the third quarter was also revised down to a decline of -6.3% (see here for details). By taking growth from the previous three quarters and putting it into the fourth quarter, the end result was that fourth quarter growth came in at a positive 1.8% quarter-on-quarter annualized rate
That might have been an end of it but there were more revisions in the first quarter of 2013. Growth in the first and second quarters of 2012 was revised down again while growth in the third quarter was revised up. This resulted in a considerably stronger fourth quarter of 2012 while keeping year-on-year growth barely unchanged at 1.3% compared to the earlier estimated 1.2% (see here for details).
Many Singaporeans have been screaming foul or using the old cliché, “lies, damned lies and statistics” to describe what goes on with our statistics. To be strictly fair there may have been good reasons for the revisions to earlier quarters. It is true that initial flash estimates of GDP growth are often revised substantially later on in other advanced countries. However in other countries an explanation is usually provided for the revisions. There has instead been a deafening silence on this point from the Statistics Department.
This is no different from our government’s silence when asked for data about our surpluses and the true state of our reserves. Though in the government’s case it goes beyond silence and borders on active obfuscation. This would not be my blog if it were not to call for reform of our culture of secrecy and for greater transparency and accountability.
In the absence of an explanation from the Statistics Department for the revisions one is inevitably tempted to suspect that there may be some massaging of the figures to prevent Singapore being classified as in a technical recession. Combined with the other dubious statistics produced by the Department to show rising real household incomes, which I have highlighted here and here, it makes a compelling case for the removal of the Statistics Department from government control so as to lessen the possibility of political interference in the calculation of its statistics. (Again, it wouldn’t be my blog if it wasn’t calling for independence from government control).
The UK Parliament in 2007 passed The Statistics and Registration Service Act 2007 which “established the UK Statistics Authority as an independent body at arm’s length from government with direct reporting to Parliament …rather than through Ministers, and with the statutory objective of promoting and safeguarding the production and publication of official statistics that “serve the public good”.
We need similar reform here coupled with a Freedom of Information Act. I have called repeatedly elsewhere for greater transparency in the general government accounts, which should include all the Fifth Schedule companies and statutory boards, in particular, Temasek and GIC.
However reform aimed at improving the transparency and independence of our economic statistics in the future does not alter the reality on the ground at present. Credit Suisse in a recent research note called Singapore “the sick man of ASEAN” and said that it “must rely on a meaningful improvement in the global trade cycle to register a reasonable recovery”.
While the services sector has held up reasonably well and the construction sector has been buoyed by government infrastructure spending, the industrial production index was by February this year some 18% below its peak in 2011 (see the Monthly Digest of Statistics for March 2013). Of course 2011 was when the government had just triumphantly announced 14% growth for 2010 driven largely by the sectors (manufacturing and pharmaceutical manufacturing in particular) that are now declining. Labour productivity fell last year by 2.6% with manufacturing leading the way. The fall in productivity is if anything accelerating if the latest figures are added in.
The government is still sticking to its forecast of 1-3% growth for this year. It has been quite effective in the past in producing rabbits out of the hat, particularly when it was able to pull the wool over our eyes by confusing GDP growth (easily manipulable when US and EU demand was growing strongly by the addition of cheap foreign labour) with growth in GDP per hour worked. With the decline in our main export markets accelerating, Chinese growth slowing and several of our main trading partners such as Japan resorting to competitive devaluation to boost exports it is difficult to see where the rabbits will come from this time. With inflation at current levels the government is not going to direct the MAS to lower its exchange rate targeting to boost the economy.
Paradoxically, just as Singaporeans have not seen the real income gains that one would expect from the high growth rates of the recent past – because most of the gains have accrued to the fixed factor of land as well as the profits and surpluses of the government and MNCs – a slowdown may not initially have too severe an effect on real median incomes. Even more so if it leads to a slowdown in inflation.
The government is fond of talking of a tight labour market and warning that business will face catastrophic cost increases if we tighten the tap on foreign labour but this is contradicted by the fact that real wages continue to lag behind inflation for the bulk of workers. This does not suggest a tight labour market.
Ultimately though rising living standards are dependent on raising productivity and here the PAP government is continuing to fail to perform. If we were moving upmarket into higher value added manufacturing one would expect average wages to be higher in the manufacturing sector than in services but in fact they are lower.
We are stuck in industries that are dependent on cheap labour and increasingly vulnerable to competition from countries with access to cheaper labour supplies while any move upmarket has to contend with similar moves by China and Korea, both with access to much greater R&D resources than us. If our economic recovery is dependent on a recovery in world trade one can legitimately question what “alpha”, or value the PAP are adding. The pejorative title of “The Sick Man of ASEAN” may well prove to be the most accurate one.