VZCZCXRO6611
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0671/01 1950858
ZNR UUUUU ZZH
R 140858Z JUL 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6955
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 000671 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN SN
 
SUBJECT:  SINGAPORE PULLS OUT OF RECESSION, TECHNICALLY 
 
REF: A) SINGAPORE 355; B) SINGAPORE 80 
 
¶1.  (SBU) Summary:  Singapore's economy showed positive growth 
during the second quarter, unofficially marking the end of a 
year-long recession.  Advance estimates are that Singapore posted a 
20.4 percent expansion over the previous quarter, though still a 3.7 
percent drop from the same period in 2008.  Much of the growth was 
led by the volatile biomedical sector that may not be sustainable, 
but growth continued in the tech sector, construction, financial 
services and property.  Although the government cautioned that a 
full recovery would still be slow in arriving, economists are 
increasingly confident that recovery is approaching faster than 
previously expected and are revising upward their growth forecasts 
for the year.  The labor market has shown to be more resilient than 
expected, but higher than normal levels of unemployment will likely 
continue as companies work through excess labor capacity.  The 
government is unlikely to put forward new fiscal or monetary easing 
to further jolt the economy.  End Summary. 
 
Recession Is Over (If You Want It) 
---------------------------------- 
 
¶2. (U) Singapore's Ministry of Trade and Industry (MTI) released 
advance estimates July 14 for GDP growth in the second quarter, 
showing robust quarter-on-quarter seasonally adjusted growth of 20.4 
percent, technically ending a recession that saw four consecutive 
quarters of negative growth.  The estimates are based primarily on 
data from April and May and final figures will be released in 
August.  The quarterly growth is Singapore's strongest since the end 
of the last recession in 2003.  On the back of the new data and what 
it termed a subdued outlook for the rest of the year, MTI raised its 
forecast of annual growth to a range of -6.0 percent to -4.0 
percent, up from the -9.0 to -6.0 percent prediction that it made 
after the first quarter. 
 
¶3. (U) Manufacturing led the revival in GDP figures, contracting 
only 1.5 percent year-on-year (YOY), compared to a 24.3 percent 
contraction in the first quarter.  Manufacturing output was up 13.2 
percent in April and May compared to the first quarter's average. 
However, the growth was led by the highly volatile biomedical 
sector, which leapt 138 percent YOY in May, a rate highly unlikely 
to be sustained.  Nevertheless, economists see a gradual trend of 
recovery in manufacturing that has broadened from electronics into 
chemicals and precision engineering.  The Purchasing Managers Index, 
a forward-looking indicator based on a survey of purchasing 
executives, hit its highest level in June since December 2006. 
Services were the biggest drag on the economy, contracting 5.1 
percent from a year ago. 
 
¶4.  (U) GOS statements have been careful to manage expectations, 
pointing out continued weaknesses in the Singapore economy and 
predicting a slow recovery.  MTI's statement dismissed the 
biomedical output as a "spike", and described the boost in 
electronics manufacturing as inventory restocking which may not be 
sustainable.  MTI noted as well rising unemployment and reduced 
consumption in its main export markets in the United States and 
Europe and the lack of evidence of any improvement in final demand. 
Finance Minister Tharman recently warned an investors conference 
that while the worst was over, recovery would be slower than in past 
recessions.  Tharman pointed out that the U.S. consumer is saving 
more, while growing Chinese consumption would be unable to 
compensate. 
 
¶5. (SBU) Nevertheless, local economists are more optimistic and have 
been revising their growth forecasts upward amid hopeful signs that 
the recovery will be stronger and sooner than earlier anticipated. 
HSBC economist Robert Prior-Wandesforde said in a recent paper that 
the bank now expects a strong V-shaped recovery to follow for the 
rest of the year, pointing to increased activity in the property 
market, financial services and construction.  Citigroup analysts 
expect second half growth to taper off, but for the economy to 
return to pre-recession peaks by the second quarter of 2010. 
Although the momentum in manufacturing will probably slow, Citigroup 
sees that offset by a gradual recovery in trade-related and retail 
services and momentum in property markets and construction. 
 
Employment To Lag 
----------------- 
 
¶6. (SBU) Despite the better than anticipated growth figures, 
unemployment will likely continue to rise as the manufacturing 
sector struggles to recover.  Nevertheless, the labor market has 
been more resilient than previously expected.  Economists at Credit 
Suisse give credit to government programs to subsidize worker 
salaries and training that may have saved tens of thousands of jobs, 
as well as employers who opted to reduce wages and bonuses rather 
than head count.  Firms have also shortened work weeks and put staff 
into training programs rather than letting them go.  However, these 
same cost cutting measures will likely slow recovery in the job 
 
SINGAPORE 00000671  002 OF 002 
 
 
market as firms re-extend work weeks and bring temporarily redundant 
employees back onto the rolls. 
 
No More Easing 
-------------- 
 
¶7. (SBU) With the improvement in the economy's prospects, analysts 
believe it unlikely that there will be further fiscal or monetary 
easing anytime soon.  The Monetary Authority of Singapore, the 
central bank, eased monetary policy in April (ref A), but will 
likely keep its policy intact at the next review in October. 
Further, only a few weeks ago there were rumblings of a secondary 
fiscal stimulus to build on an expansionary budget unveiled in 
January (ref B), but those rumblings have since subsided and 
analysts are expecting the GOS to hold off on any new stimulus 
programs. 
 
SHIELDS