If PAP Were Planning An Early Election Before Things Got Worse They Have Missed the Boat
Today’s Ministry of Trade and Industry (MTI) release of GDP for the first quarter 2019 actually shows an acceleration in annualized quarter-on-quarter growth to 3.8% despite the drop in year-on-year growth to 1.3%, below expectations of 1.5%.
Manufacturing was the main culprit since it constitutes around 22% of GDP and fell at a 7% annualised rate in the quarter. The hand of the Government can be discerned in many of the sectors which grew during the quarter, helping to keep year-on-year growth from slipping closer to zero or even turning negative. Construction expanded at a 14% rate on a quarterly basis, though it only constitutes 3.4% of GDP, while other services (11% of GDP) which comprises education, healthcare and social services grew by 13%.
As the Statistics Department comes under MTI and like everything in Singapore is controlled and micromanaged by the PAP to present themselves in the best possible light, I have no way of knowing how accurate these statistics are. By contrast Office of National Statistics in the UK is completely independent from the Government. I suspect that there is some manipulation going on but no amount of manipulation short of outright fraud can disguise the fact that growth is likely to decelerate further in the coming months.
MTI is quick to blame the external environment, in particular the trade war between China and the US as well as a Brexit-driven slowdown in the UK and the EU, for our economic woes. However the PAP’s over-reliance on manufacturing is the real culprit. At 22% of GDP it is nearly twice the contribution of manufacturing to US GDP though a little less than German levels. It is however unusual for a global city to be so dependent on manufacturing. The PAP’s enthusiasm for manufacturing probably has a lot to do with the use of tax policy to artificially inflate our GDP through MNC transfer pricing. Like Ireland our sky-high GDP per capita bears little relation to ordinary Singaporeans’ living standards.
The truth is that, as I have frequently said, Singapore runs a huge current account surplus and is largely dependent on external demand. The Government runs enormous surpluses and imposes conditions of austerity on its citizens that would not be tolerated in a democracy. There is plenty of room to stimulate the economy to counteract falling external demand and spend more on improving Singaporeans’ welfare. However instead the Government talks constantly of taxes needing to go up (and will be raising GST to 9% after the next election) which doesn’t square with what even under the most conservative assumptions is an ever growing pile of assets. That is before even including the value of the land it owns (at least 80-90%).
I was bemused at Budget time this year by Heng Swee Keat’s mendacious claims that Singapore is enjoying some kind of productivity miracle. It is difficult to see how his claims can have any credibility when growth is close to zero, manufacturing (traditionally the driver of productivity growth) is contracting at the fastest rate since the Great Recession of 2009, while the number of employed workers is growing (as the domestic workforce is shrinking these are probably foreigners). Details can be found on the Singstat website.
In short the economy is going to get a lot worse and the PAP have dug a deep hole for themselves by their over-reliance on manufacturing. Heng’s pliant statisticians may be able to cook the books but not for much longer as the chickens are coming home to roost. Of course the PAP will blame recession on foreign economies like a long-only fund manager who gets the credit when stocks go up while blaming the market when they go down. Hopefully Singaporeans will not be so gullible when the much anticipated next election is finally called.