[Voodoo Vince]

Singapore’s GDP: Green shoots or brown weeds?

ESTHER FUNG
esther@mediacorp.com.sg

SOME put it down to the psychological lift that happy talk about “green shoots” has given the equity and other asset markets. Then, there’s the undeniable impact the Government’s risk-sharing package has had on loosening lenders’ purse-strings.
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The result has been a smaller-than-expected 14.6-per-cent contraction in the economy in the first three months of the year from the previous quarter, or 5.1 percentage points better than the initial estimates of a 19.7 per cent contraction made last month.
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So, has the Government been too bearish? The Ministry of Trade and Industry (MTI) said yesterday the worst was probably over, but added it was too early to say if Singapore has begun to rebound. “There are green shoots, no doubt, but there are also some brown weeds,” said MTI Second Permanent Secretary Ravi Menon.
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On a year-on-year basis, gross domestic product fell 10.1 per cent in the first quarter. The GDP forecast for the whole year is maintained at a 6 to 9 per cent contraction.
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THE GREEN SHOOTS ...
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The MTI attributed the better-than-expected showing to a rebound in the financial sector, where there has been higher trading volumes and strong lending activity.
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Private sector economists also noted the boost to the credit markets resulting from the Government’s risk-sharing initiatives.
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This trend, borne out in data released yesterday, appears to be extending into the second quarter.
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Last month, Government-backed loans hit a monthly record with 1,834 approved loans worth more than $1.06 billion in total — more than March’s figure of 1,474 loans worth $861.3 million. That’s a huge increase from the 226 Government-backed loans approved in December, the first month of the enhanced financing schemes.
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Maybank Singapore, for one, has doubled its loan portfolio under the Government’s financing schemes since December, with 80 per cent of the borrowers being new customers. Mr Lee Hong Khim, Maybank’s head of business banking, said: “We plan to expand our Government-backed loans portfolio two-fold by 2010.”
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Citigroup economist Kit Wei Zheng said the Jobs Credit Scheme helped to avert massive layoffs here.
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The net job loss in the first quarter was 1,000, according to the MTI’s latest economic survey, which noted that the resident unemployment rate in the first quarter was 4.8 per cent, below the peak in previous recessions.
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Other “green shoots” include improved business expectations for companies in the manufacturing and services sectors compared to three months ago, said the MTI.
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And “while trade is still expected to be weak for the rest of 2009, further declines of the magnitude seen earlier this year seem unlikely”, said the MTI. In the first quarter, non-oil domestic exports slumped 26 per cent from the corresponding period in the previous year.
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The MTI added that there have been “no new major” systemic risks to the world economy apart from the Influenza A (H1N1) outbreak since its last revision.
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THE BROWN WEEDS?
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But some experts have cautioned against excessive optimism over “green shoots”.
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Standard Chartered economist Alvin Liew said the recent stock market rally was not warranted.
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“The market has gone ahead of itself. We are mindful that the worst is possibly behind us, but the recovery process is going to be slow and sluggish,” he said.
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OCBC economist Selena Ling said: “What we have now is a disconnect between financial and equity markets that want to believe in green shoots. But some of the hard data, like United States retail sales, still suggest the economy is more in the ‘brown weeds’ territory.”
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Meanwhile, major economies such as Japan and the Eurozone appear to remain weak. However, mixed signals are also an indicator of a trough, said Forecast Singapore economist Vishnu Varathan.
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“They usually precede a recovery, but they don’t give any indication of when it will come and in what shape it will be,” he said.

http://www.todayonline.com/articles/321372.asp