VZCZCXRO6488
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #1242/01 3261013
ZNR UUUUU ZZH
R 211013Z NOV 08
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6054
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 SINGAPORE 001242 
 
STATE PASS USTR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD SN
 
SUBJECT: EXPORT DEPENDENCE DRAGS DOWN SINGAPORE ECONOMY 
 
REF:  SINGAPORE 1110 
 
¶1.  Summary:  Singapore's export performance recorded a 15- percent 
drop in October, the sixth consecutive monthly decline.  Singapore's 
reliance on exports for a substantial part of its economy helped 
drag the country into a technical recession during the third 
quarter, a situation unlikely to improve in the near term.  Slowing 
global demand has broadly hit exports, in particular key electronics 
and pharmaceutical exports, although volatility in the 
pharmaceutical sector may be overstating the overall impact on the 
economy.  Services exports, including tourism, offer no respite. 
Analysts predict that projected slow demand in the EU, United States 
and increasingly Asia will continue to crimp exports and delay any 
recovery in economic growth until late 2009.  End Summary. 
 
¶2.  The GOS announced November 17 that Singapore's non-oil domestic 
exports (NODX) fell 15 percent in October, the sixth straight month 
of contraction and the largest contraction since March 2002.  This 
has been the longest export slump in six years.  Worse numbers are 
likely to come.  A report by HSBC Holdings said the bank expects 
that the effects of the recent credit crunch will only be fully 
reflected in November and December data.  Key leading indicators 
suggest that exports will continue to drag well into the first half 
of 2009.  The Singapore dollar has weakened steadily since July and 
offers some relief to exporters, but Singapore's manufacturing 
exports tend to have high import content, raising the cost of 
inputs.  Citigroup analysts expect the global slowdown will keep the 
Singapore economy in recession for the next six to twelve months. 
 
¶3.  Singapore's heavy reliance on exports for economic growth helped 
make it the first Asian country to find itself in a technical 
recession last month, suffering two consecutive quarters of negative 
growth in the second and third quarters of 2008 (reftel).  Singapore 
has a small domestic market and has traditionally depended on its 
strategic position at the junction of major trading routes to act as 
a distribution hub for the region.  Singapore's overall trade is 
approximately 3.5 times GDP, one of the highest rates in the world. 
The GOS has made a conscious effort over the years to diversify the 
Singaporean economy to avoid having a slump in any one industry 
dragging the entire economy down.  However, the broad and deep 
contraction in key export markets has hit a wide array of export 
sectors. 
 
Exports Tough All Over 
---------------------- 
 
¶4.  Singapore's non-oil exports to its key trading partners took a 
major drop in October and led the overall decline.  Exports to the 
United States dropped 31 percent year-on-year, the tenth consecutive 
month of contraction.  Exports to the United States began slowing in 
mid-2007 as the sub-prime crisis began to pinch U.S. incomes, and 
exports have been off approximately 15 percent since the beginning 
of the year.  Exports to other regions held up earlier in the year, 
but as the effects of the financial crisis have spread around the 
globe, Singapore's exports to other regions have begun to see 
serious declines in the past few months.  Exports to the EU fell 14 
percent in October, following a 24-percent contraction in September. 
 Together the EU and United States markets are the destination for 
almost one-third of Singapore's total exports. 
 
¶5.  Exports to Asian markets had been brighter this year, but have 
also begun to fall off, reflecting a slowdown in domestic Asian 
demand as well as a drop in exports of intermediate goods that are 
assembled for final export to developed markets.  Exports to China 
were down nine percent.  Exports to Indonesia were up 6.1 percent, 
the only increase in Singapore's top 10 export markets.  Exports to 
other emerging markets had stayed in positive territory in past 
months, but the slide in global commodity prices has hurt the 
ability of many developing countries to continue importing at the 
same levels. As a result, overall exports to emerging markets are 
down 18 percent. 
 
Electronics and Pharma Lead the Decline 
--------------------------------------- 
 
¶6.  Exports of electronics manufactures, which make up about 30 
percent of Singapore's total manufacturing base, have led the 
downturn.  Electronics exports contracted for the 21st consecutive 
month in September, falling by 15 percent year-on-year.  Electronic 
consumer products were off 53 percent.  The decline was fueled in 
part by closure of a Motorola cell phone plant in April, and other 
restructuring in the electronics industry. 
 
¶7.  Pharmaceutical exports contracted 39 percent in October, 
following a 28-percent decline in September.  Pharmaceutical 
production is a relatively new industry for Singapore and has become 
a key sector, making up 22 percent of overall manufacturing. 
However, the production and export figures for this industry are 
highly volatile by nature and may have prematurely pushed Singapore 
 
SINGAPORE 00001242  002 OF 002 
 
 
into a technical recession.  Nearly all pharmaceutical plants in 
Singapore engage in production of active pharmaceutical ingredients, 
which requires production at full capacity for a period of time, 
followed by an idle period for cleaning and sterilization to prepare 
for the next order.  The volatility in the production pattern is 
reflected in wide swings in production and export statistics which 
can skew overall economic figures.  The industry's actual impact on 
the economy is relatively light as the pharmaceutical industry is 
not closely integrated with other sectors and employment is 
relatively low.  Nevertheless, pharmaceutical exports have shown an 
overall downward trend for the year and have declined at 
unexpectedly high rates. 
 
¶8.  Although Singapore has consciously diversified its exports 
beyond manufacturing into services, many services are externally 
oriented and are also suffering.  As regional trade has slowed, so 
have Singapore's wholesale trade, transport and logistics services. 
A combination of higher air travel costs and the financial crisis 
have served to put the tourist industry in its fourth straight month 
of decline.  Hotel occupancy and room rates are expected to be flat 
in coming months despite the upcoming holiday season.  The GOS 
estimated the industry will not fully recover for another two years. 
 Financial services that Singapore provides the region have held up 
relatively well, but with funding conditions tightening, this sector 
is also taking a turn for the worse with numerous financial 
institutions laying off staff and cutting costs. 
HERBOLD