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Weak Exports Confirm We Were Right to Call for A Stimulus Package Last Year


The latest figures for non-oil domestic exports were extremely weak and signal that GDP growth is likely to be weaker than the MAS’s projection for this year of 2-4%. They fell by 9.7% in February compared with the same month last year. As non-oil domestic exports comprise about 40% of GDP, it is likely that the economy will enter a recession later this year if the trend is confirmed (though on the past track record one cannot rule out further manipulation of the figures by the Statistics Department). The decline in exports to China can hardly have been a surprise for the Government as most data have indicated that China is already in recession despite the official figures purporting to show that the Chinese economy is still growing at 7%. In addition the Japanese government’s deliberate depreciation of the yen is doing exactly what it is supposed to do-curb imports and stimulate exports.

The PAP Government does not have any strategy to deal with this other than to blame it on industrial restructuring caused by their decision to restrict the inflow of cheap foreign labour in an effort to boost productivity growth. However if this were part of a planned restructuring we would expect to see a booming export sector complaining about lack of access to cheap labour. Instead local manufacturing has been forced to restructure by a combination of weak global growth and uncompetitive or poorly positioned exports. The fact that commentators expect the MAS to respond by depreciating the SGD further, a move that will cut real wages, shows that the Government is panicking and this is not a planned strategy to increase productivity. The fall in exports and manufacturing output, unless accompanied by lay-offs, will actually have the opposite effect of leading to negative productivity growth.

Reform Party have consistently called for a stimulus package to boost domestic demand since April last year in order to restructure the economy away from its dependence on exports. We called for a stimulus package of about 0.5 to 1% of GDP. Needless to say, the Government and the State media ignored our calls.

There is ample fiscal room for a much larger stimulus of about 2-3% of GDP since the Government runs a true surplus of about $30 billion a year. In addition the current account surplus has consistently been around the same size. In Budget 2015, the Finance Minister used the usual sleight of hand to produce a headline deficit for 2015 of $6.7 billion. However, he lumped together transfers to funds, like the Productivity Fund and the newly set-up Changi Airport Fund, with current spending. Once these are properly allocated and the usual conservatism in forecasting spending taken into account, the Government Budget will probably show a surplus. This is despite ignoring returns from Temasek, GIC, MAS and land sales, which need to be taken into account if we follow the correct IMF accounting framework.

In light of the latest figures showing the situation has got considerably worse we repeat our calls for an enhanced stimulus package. As we indicated in our previous calls, this should take the form of cash rebates concentrated on the middle to lower income groups. The depreciation of the SGD, whether engineered by MAS or the result of massive capital outflows, is unlikely on its own to revive the economy. Most exporting countries, like Germany, Japan, Korean, even China, are resorting to deliberate weakening of their currencies to try and boost exports in what will undoubtedly be a self-defeating strategy.

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