pan

Recent Economic Developments in Singapore

01 Sep 2011 2010 Q3 Real Sector
Real GDP Growth, y-o-y % Real GDP Growth, q-o-q saar % Index of Industrial Production, y-o-y % Non-oil Domestic Exports, y-o-y % 10.5 -16.7 13.7 23.7 2.1 3.4 5.4 12.0 3.9 25.7 17.6 2.2 4.0 7.5 14.5 29.7 22.8 2.2 2.8 5.6 9.3 27.2 16.5 12.3 1.9 5.2 8.5 0.9 -6.5 -5.8 1.9 2.1 4.7 6.0

2011 Full Year Q1 Q2

Q4

Labour Market and Prices

Unemployment Rate, sa, % (Average) CPI Inflation, y-o-y % Wage Growth, y-o-y %

Highlights: The Singapore economy saw a sequential decline in Q2 2011

Domestic economic activity fell by 6.5% q-o-q saar (seasonally-adjusted annualised rate) in the second quarter of this year. The contraction was led by a slowdown in trade-related activities, due to supply-chain disruptions from the Japan earthquake and weaker demand from the advanced economies.

Global growth is expected to be subdued in the months ahead

In H1 2011, economic growth slowed in the G3, and moderated in Asia ex-Japan. Activity in the US and Eurozone is likely to remain weak in the near term, weighed down by fiscal consolidation and sovereign debt concerns.

Singapores GDP growth is forecast to come in between 5-6% in 2011

Economic activity in Singapore is likely to grow modestly in the second half of the year. Growth will be supported by services which are driven largely by Asian demand. However, downside risks in the external environment have heightened in recent weeks, including weaker growth prospects in the US and Europe.

Headline CPI inflation will remain elevated over the next few months
CPI inflation is expected to come in at slightly over 5% in the next few months, boosted by accommodation and private road transport costs, before slowly trending down towards the end of the year. Excluding these items, MAS Core Inflation will be lower, although it will still be firm due to the continued pass through of earlier commodity price hikes and wage increases.
____________________________ Note: Labour market statistics were obtained from the Ministry of Manpower, while trade and index of industrial production (IIP) data were provided by IE Singapore and the EDB respectively. All other data in this document were obtained from the Building and Construction Authority, Department of Statistics, Ministry of Trade and Industry, unless otherwise stated.

A. Macroeconomic Overview
G3 growth falters in H1 2011 Economic growth in the G3 was weak in the first half of 2011, reflecting the impact of transitory shocks such as higher oil prices and the Japanese earthquake. Moreover, recent GDP data revisions in the US showed that economic conditions were not as robust as previously thought indeed, aggregate activity had stalled since H2 2010. In the Eurozone, growth slowed dramatically in Q2 after a strong outturn in the preceding quarter. Japans economic performance, however, came in slightly better than expected in Q2, as industrial production rebounded after the earthquake in March. In the US, real GDP growth was revised sharply down to 0.4% in Q1 from 1.9%, due to lower inventory investment and higher imports than previously estimated. Growth picked up to 1.0% q-o-q saar in Q2, with gross fixed capital formation providing significant support. In particular, business investments in machinery, equipment and structures, grew by 9.9% q-o-q saar compared with 2.1% the quarter before. Residential investment also saw a modest pick-up, although the housing market still remains generally weak. In contrast, household consumption growth virtually came to a standstill as American consumers cut back on their purchases in the face of falling real incomes. Growth in the Eurozone fell to 0.7% q-o-q saar in Q2 from 3.4% in Q1. The lacklustre performance was rooted in the weakness of the core economies of France and Germany, which posted growth of 0% and 0.5% respectively. Both countries were weighed down by a decline in private consumption. Additionally, growth in Germany was also affected by the slowdown in the global trade cycle.
Activity in the G3 declined in H1 2011.
10 5 0

Real GDP Growth US Eurozone

QOQ SAAR % Growth

Japan
-5 -10 -15 2005 2006 2007 2008 2009 2010 2011
Q2

Source: Datastream

The Japanese economy shrank for the third consecutive quarter by 1.3% q-o-q saar, although the contraction was less severe than previously expected. Net exports were adversely affected by the widespread supply chain disruptions, shaving 3.1% points off overall growth. Private consumption held up relatively better, with a smaller decline of 0.3% in Q2, compared to -2.5% in Q1. In contrast, government investment increased by 12.5% q-o-q saar as post-quake reconstruction spending commenced. 2

Despite soft economic conditions, inflation in the US and Eurozone rose further in Q2 2011 as a result of higher energy and food prices. Headline CPI inflation in the US increased to 3.4%, the highest since Q3 2008. Likewise, in the Eurozone, inflation remained above the ECBs target. In Japan, core consumer prices fell by a smaller 0.93% in Q2, following a 1.4% decline in the previous quarter, as deflationary pressures started to dissipate alongside the recovery from the earthquake. Regional economies: A deceleration in growth seen in Q2 Advance Q2 GDP releases for the Northeast Asian countries indicated a moderation in economic activity. The ASEAN-4 economies however, turned in a mixed performance, with Indonesia continuing to grow strongly in contrast with slower expansions in the export-oriented economies. Reflecting the significantly weaker external environment, growth in the trade-dependent economies of Hong Kong, Korea, Malaysia, Taiwan and Thailand moderated in Q2 2011. On a trade-weighted basis, the average growth of these economies slowed to 4.2% from 5.4% in Q1, partly due to production cuts in Japan, which affected their IT industries as a result. In China, economic activity eased gradually in the first six months of this year, as successive rounds of policy tightening took effect. Growth edged down to 9.5% y-o-y in Q2 2011, after easing to 9.7% in the previous quarter, amidst continued efforts to rein in credit expansion. While industrial output continued to grow at double-digit rates, growth moderated slightly in Q2 from the previous quarter as firms ran down inventories. Nonetheless, retail sales accelerated slightly in Q2 alongside robust wage increases, while fixed asset investment remained buoyant. Similarly, GDP growth in India moderated to 7.7% in Q2 2011, following the cumulative interest rate hikes of 250 basis points since early last year. Meanwhile, price pressures have continued to intensify across Asia ex-Japan 1 , driven largely by higher food and commodity prices and tight labour markets. Headline CPI inflation in the region rose to 5.7% in Q2 2011, from 5.4% in Q1. Nonetheless, there are signs that the upward momentum has slowed and headline rates are starting to stabilise in some countries, particularly Indonesia and Taiwan.

Asia here comprises China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

Singapore economy: Activity slowed sharply in Q2

The Singapore economy contracted by 6.5% q-o-q saar in Q2 2011.
50 40 30 Per Cent 20 10 0

Real GDP

SAAR

YOY Growth
-10 -20 2005 2006 2007 2008 2009 2010 2011
Q2

Following a 27.2% q-o-q saar expansion in Q1 2011, economic activity in Singapore took a sharp step-down in Q2, contracting 6.5% q-o-q saar. Excluding the pharmaceutical segment, economic activity fell by 5.0%2. For H1 2011 as a whole, domestic GDP growth averaged 4.9% in y-o-y terms, compared to 11.2% in H2 2010.

The decline was led by a slowdown in trade-related activities3 which were affected by supply chain disruptions arising from the Japan earthquake as well as softer global demand. Within the services cluster, the financial and business sectors recorded mild declines. In comparison, tourism-related industries, such as hotels & restaurants and retail, continued to register steady gains, supported by resilient regional demand. i) Manufacturing Sector Manufacturing activity fell by 23.7% q-o-q saar in Q2 2011, following a 97.2% surge in the preceding quarter. The decline was broad-based, with contractions in both the electronics and non-electronics clusters. Electronics output shrank by 43.4% q-o-q saar in Q2, as the semiconductor and infocomms & consumer electronics segments fell sharply.

Activity in both the electronics electronics clusters faltered.

200

and

non-

IIP Non-electronics
Index (Q1 2005=100), SA 175 150 125 100

Total IIP

IIP Electronics
75 50 2005 2006 2007 2008 2009 2010 2011
Q2

Activity in the non-electronics segment was dampened as well, with chemicals, pharmaceuticals and general manufacturing recording double-digit sequential declines. In contrast, the precision engineering cluster received a boost from the marked expansion in machinery and equipment investments in Singapore in Q2.

2 3

EPG, MAS Estimates Trade-related activities here comprise manufacturing, wholesale and transport & storage sectors.

ii) Construction Sector The construction sector expanded by 13.4% q-o-q saar in Q2. Gains were supported by the public non-residential segment, notably from industrial developments such as JTC Corporation's Liquefied Natural Gas (LNG) Terminal and ongoing projects at the Seletar Aerospace Park. Meanwhile, growth in public and private residential construction moderated slightly.

Construction activity saw sequential growth in Q2 2011.

350 Index (Q1 2005=100), SA 300 250 200 150 100 50 2005 2006 2007 2008 2009 2010 2011
Q2

Non-residential Certified Payments Residential Certified Payments

Civil Engineering Certified Payments

Source: EPG, MAS Estimates

iii) Services Sector Following the 10.1% increase in the preceding quarter, activity in the services sector plateaued (-0.2%) in Q2 2011. Alongside the sharp decline in the domestic manufacturing industry, some of the supporting trade-related services also faltered. In particular, the weak showing in the wholesale segment reflected in part the decline in electronics re-exports to Europe. Meanwhile, the tourism-related services sector continued to expand in Q2 2011 amidst continued resilience in the region. The regional market 4 accounted for more than 70% of visitor arrivals into Singapore. As a result, average room rates trended upwards and hotel occupancy rates rose from 86% in Q1 to 87% in Q2. The financial services sector saw a mild contraction of 0.2% q-o-q saar in Q2 2011. Heightened uncertainty surrounding the Eurozone and US debt-related problems weighed on the sentiment-driven industries. For instance, stock market average daily turnover volumes dropped sharply by 24% q-o-q, extending the 7.7% decline in the quarter before. In contrast, lending activities remained resilient. Domestic non-bank lending expanded for the ninth sequential quarter, bolstered by an increase in business loans. Consumer lending also stayed firm, supported by a pipeline of mortgage-related loans. In the offshore segment, gains in lending to the region helped offset the fall in loans extended to Europe.

The regional market here comprises ASEAN, China, Hong Kong, India, Japan, Korea and Taiwan.

B. Labour Market
Modest employment gains in Q2 2011 Preliminary estimates showed that overall employment gains moderated to 22,800 in Q2 2011, from 28,300 in the preceding quarter. In particular, hiring in services eased by almost a third to 18,800 as most segments added fewer workers in Q2. In comparison, the manufacturing and construction sectors saw a slight pick-up in hiring. Manufacturing expanded employment by 1,300, led by the non-electronics industries while construction added 2,600 jobs due to the ramp-up in public sector projects. Reflecting the slower expansion in employment, the seasonally-adjusted overall unemployment rate edged up from 1.9% in March 2011 to 2.1% in June. Similarly, the resident unemployment rate rose from 2.7% to 3.0% over the same period. As a result, overall resident wage growth eased from 8.5% y-o-y in Q1 2011 to 6.0% in Q2. According to the latest Business Expectations Survey, the employment outlook has softened somewhat in industries such as transport & storage, financial services, business services and manufacturing. However, wholesale & retail trade, accommodation & food services and recreation, community & personnel services have reported stronger hiring expectations. Notwithstanding the divergence in employment prospects across the various sectors, overall employment is still expected to grow at a firm pace over the next few months.
The pace of hiring slowed in Q2 2011.
80
Changes in Employment ('000)

3.6 3.2 2.8 2.4 2.0 1.6 2011 Q2

Per Cent, SA

60 40 20 0 -20 2005 2006 2007 2008 2009 2010

Goods Industry (LHS) Services Industry (LHS)

Unemployment Rate (RHS)

C. Inflation
CPI inflation eased in Q2 2011, but is expected to remain above 5% for the coming months Headline CPI inflation eased from 5.2% y-o-y in Q1 2011 to 4.7% in Q2 2011, reflecting the effects of a high base a year ago when car prices surged. In contrast, MAS Core Inflation, which excludes the costs of accommodation and private road transport, rose from 1.9% in Q1 to 2.2% in Q2 on account of the tight domestic labour market, firm consumer spending and elevated global commodity prices. In July, CPI inflation rose to 5.4%, mainly due to the increase in accommodation costs, as old tenancy contracts are reset at the current higher rental rates, as well as a sharp rise in COE premiums. MAS Core Inflation remained stable at 2.2% as the upward adjustment in electricity tariffs in Q3 was offset by the moderation in services inflation.
CPI inflation rose to 5.4% in July.
8 7 6 YOY % Growth 5 4 3 2 1 0 -1 -2 2007 2008 2009 2010 2011

Overall CPI Inflation MAS Core Inflation

Jul

CPI Inflation is expected to remain elevated at slightly over 5% in the next few months, on account of continued strong increases in accommodation costs, before slowly trending down towards the end of the year. The high COE premiums imply that car prices will also remain a significant contributor to CPI inflation for the rest of the year. In comparison, MAS Core Inflation will be lower, although it will remain firm due to the continued pass through of earlier commodity price hikes and wage increases. For the whole of 2011, CPI inflation is expected to average between 4% and 5%, of which almost two-thirds will be accounted for by accommodation and private road transport costs. Excluding these two items, the MAS Core Inflation is projected to be 2-3%.

D. Balance of Payments
The surplus in the overall balance of payments moderated in Q2 2011 The overall balance of payments surplus moderated to $5.5 billion in Q2 2011, from $6.2 billion in the preceding quarter. This reflected a narrowing of the current account surplus, even as the net outflow in the capital and financial account declined. Gross capital inflows increased from $39 billion in Q1 to $46 billion in Q2. These inflows have been volatile, but at an average of $31 billion (40% of GDP) per quarter since Q1 2010, they were slightly below the average of $37 billion (59% of GDP) per quarter in the previous period of sharp inflows from Q1 2006 to Q1 2008. The inflows in the latest quarter were driven by direct and other investments, while portfolio investment continued to be negative, indicating that foreigners sales of local securities exceeded their purchases.
The overall balance of payments moderated to $5.5 billion in Q2.
30 20 10 S$ Billion 0 -10 -20 -30 2005 2006 2007 2008 2009 2010 2011
Q2
Capital & Financial Account Current Account

surplus

Overall Balance

Other investment gross inflows comprise both bank and non-bank private sector flows. The former accounted for the bulk of the increase in Q2, largely reflecting DBU borrowings from the ACU.
The increase in gross capital inflows in Q2 was driven by direct and other investments.
Direct Investment Portfolio Investment Other Investment

60

40 S$ Billion

20

-20 2005 2006 2007 2008 2009 2010 2011

Q2

While gross inflows to Singapore are large, there have also been sizable gross outflows from the financial system, given our role as an international financial centre as well as the large presence of companies here with international operations. In fact, Singapore is typically in a net capital outflow position.

Gross capital outflows rose to $53 billion in Q2 from $50 billion in the preceding quarter, and exceeded gross inflows by $6.5 billion. There was a significant gross outflow of other investment from the domestic banking sector, mainly arising from increased loans to non-bank non-residents. Overall, net outflow in the financial account narrowed to $6.5 billion in Q2 from $11 billion in Q1, driven by a decline in net outflow of other investment. In comparison, net portfolio investment outflows rose slightly, while net inflow of direct investment to Singapore fell, reflecting a larger reduction in gross foreign investment here than in outward investment by residents. The current account surplus narrowed to $14 billion in Q2 2011 from $17 billion in the previous quarter. There was a fall in the goods surplus as imports rose more than exports amidst a softening of external demand conditions. The services surplus also declined, reflecting a fall in transportation and other business services net receipts and an increase in net payments for travel services. Meanwhile, the income balance recorded a lower deficit, as the increase in income receipts exceeded that of payments.
On a net basis, the financial account recorded an outflow of $6.5 billion.
20 10 S$ Billion 0 -10 -20 -30 2005 2006 2007 2008 2009 2010 2011
Q2
Direct Investment Portfolio Investment Other Investment Financial Account

E. Outlook
G3 economies: A slowdown in growth momentum is expected Within the G3 economies, growth in the US and the Eurozone is likely to be subdued in the near term, weighed down by fiscal consolidation and sovereign debt concerns. In Japan, growth should rebound in H2 2011 due to the ongoing restoration of supply chains, and post-quake reconstruction efforts. Expectations of US growth in the coming quarters have been scaled down significantly. The ISM manufacturing PMI fell to 50.9 in July, with the non-manufacturing index coming in slightly stronger at 52.7. These readings are consistent with below-potential output growth over the next few quarters. At the same time, consumers have become less optimistic the latest reading from the University of Michigan Consumer Sentiment Index fell to 55.7 in August from 63.7 in July. The downturn reflected the impact from events such as the protracted fiscal debt ceiling debate and S&Ps downgrade of US long-term debt. While the labour market has started to show modest signs of improvement, this is unlikely to translate to a strong recovery in the short term. Latest consensus forecasts suggest that the US economy will grow by only 1.8% in 2011 and 2.4% in 2012, lower than the 2.5% and 3.0% expected a month ago respectively. Across the Atlantic, growth momentum in the Eurozone is expected to remain weak after the sharp slowdown in Q2 2011. Concerns over sovereign debt issues have intensified over the past few months, with the threat of contagion spreading from Greece, Ireland and Portugal to the more systemically important economies of Italy and Spain. At a landmark EU Summit in July 2011, European leaders agreed on a second bailout for Greece worth 109 billion, which included a debt exchange deal that reduced the net present value of Greeces debt by an estimated 21%. However, uncertainty remains over Greeces fiscal sustainability, and whether the Eurozones bailout fund, the European Financial Stability Facility (EFSF), will be sufficient should contagion spread to Italy and Spain. Combined with ongoing fiscal austerity, overall growth in the Eurozone is expected to come in at 1.9% in 2011, according to consensus forecasts. In Japan, signs have emerged that the economy is recovering from three quarters of negative growth. Following sharp declines in March, several economic indicators have shown increases in AprilMay. Industrial output recovered in April and increased thereafter while real exports also rebounded in May. Private consumption began to pick up in April, along with an improvement in the services sector.

10

Reconstruction efforts will boost growth in H2 while manufacturing production is likely to reach pre-quake levels in the next few months, as indicated by the latest PMI reading which climbed to 52.1 in July from 50.7 in June. Nevertheless, a number of headwinds persist: power shortages may not have ended as more nuclear plants are shut down for maintenance, while the slowing global economy could hold back the pace of Japans export recovery.
Table 1: Consensus Forecasts of GDP Growth 2010 Forecast 2011 Percent Industrial US Japan Eurozone UK NIE Hong Kong Korea Taiwan ASEAN Indonesia Malaysia Thailand Philippines China India * 3.0 4.0 1.7 1.4 7.0 6.2 10.9 6.1 7.2 7.8 7.6 10.3 8.9 1.8 -0.7 1.9 1.3 5.7 4.2 4.9 6.4 5.0 4.1 4.9 9.2 7.7 2.4 3.1 1.5 2.0 5.0 4.4 4.8 6.4 5.4 4.8 5.2 8.8 8.1 2012

Source: CEIC and Consensus Economics, Aug 2011 * Fiscal year starting 1 April for 2011 and 2012 forecasts.

Regional economies: Growth will be dampened by a softening in external demand The regional economies are likely to be constrained by weaker external demand in the second half of 2011 while increased uncertainty over the short-term prospects for the global economy will weigh on sentiment more generally. The impact of previous policy tightening measures in some countries will also restrain domestic demand growth. After expanding by 9.6% in the first half of this year, Chinas growth is poised to moderate in the immediate quarters ahead. Reflecting some slackening in the industrial sector, Chinas manufacturing PMI dipped to 50.7 in July 2011, its lowest level since February 2009. Consumer spending and private investment, which have posted healthy growth thus far, could ease in H2 2011 on tighter domestic credit conditions. Nonetheless, GDP growth is still expected to exceed 9% this year, after an expansion of 10.3% in 2010.

11

The slowdown in the developed countries and China would affect the NIE and ASEAN economies adversely, especially the more export-oriented ones such as Korea, Malaysia and Taiwan. Indeed, some signs of a slowdown have already emerged, with electronics exports easing significantly in recent months. The subdued external growth outlook would also impact consumer and business confidence negatively, which would in turn dampen household and investment spending. In the near term, however, the regional economies should see some pickup in activity, buoyed by reconstruction demand from Japan. On the inflation front, the recent stabilisation in global food prices, and strengthening of regional currencies have helped to cap increases in headline inflation. In China, inflation is likely to have peaked in Q2, as weather-related food supply shocks appear to have faded. In India and Korea, however, core CPI remained elevated as a result of rising wage costs and high commodity prices. With growth softening in some regional economies, underlying cost pressures should be fairly contained. In the US and Eurozone, capacity utilisation rates have remained below pre-crisis levels. Inflationary pressures may subside given the uncertain growth outlook and the easing of global oil and commodity prices. In Japan, while aggregate demand has been recovering gradually, it has yet to reach pre-quake levels. Thus, price pressures will remain muted. IT outlook: Global demand will remain lacklustre amidst headwinds from industrialised economies The global IT outlook has weakened in recent months, alongside growing concerns about the macroeconomic environment. Following strong gains in Q1, global chip sales contracted for three consecutive months in the second quarter on broad-based declines across the Americas, Europe and Asia. The moderation in activity was corroborated further upstream in the capital equipment segment as well. Based on SEMI statistics, the US chip equipment industrys book-to-bill ratio has fallen continuously over the past four months, down from 0.98 in April to 0.86 in July, reflecting manufacturers eroding confidence in global IT demand prospects.

12

Broad-based declines in global chip sales were seen in Q2.

20 15
QOQ SA % Growth

Global semiconductor inventories have risen to near pre-recession levels.

85

80
Days of Inventory

10 5 0 -5 -10 -15 2009 Q2 Q3 Q4 2010 Q2 Q3 Q4 2011 Q2

75

70

65

60 2009 Q3 2010 Q3 2011 Q2

Source: Semiconductor Industry Association and EPG, MAS estimates

Source: IHS iSuppli

Semiconductor inventories rose steadily to near pre-recession levels in Q2, as major industry players built up their stockpiles in the aftermath of the Japan earthquake on supply-side disruption fears. In the latter half of Q2, with global demand slowing alongside weaker-than-expected US economic data and fresh Eurozone sovereign debt concerns, businesses were unable to clear inventories, which subsequently remained at high levels. Production in Q3 will likely be dampened as firms work through their excess inventories amidst a retraction in final demand. Reflecting the weakening industry dynamics, average selling prices for memory chips in the DRAM market have declined significantly, falling by 20% in July, compared to April. Final demand for IT products in the advanced economies have already registered sequential declines. Demand from emerging markets also softened as well, with retail and corporate sales in China recording modest gains in Q2. Notwithstanding product launches from the smartphone and tablet segments in the coming months, recent indicators point to restrained global spending, which could cap gains in the IT sector. Overall, activity in the global IT sector is expected to remain subdued in the next two quarters.

13

Domestic Outlook: Economy expected to expand by 5 to 6% in 2011 Mirroring the heightened uncertainty in the external environment, activity in the Singapore economy slowed considerably in Q2, following the surge in Q1. Activity in the global IT industry also faltered, leading to a weak showing in the domestic manufacturing and trade-related sectors. Going into the third quarter of 2011, the recent spate of negative events, including the historic downgrade of US sovereign credit and European debt woes, has caused fresh jitters in global financial markets. Weak growth prospects in the developed economies, concerns about fiscal sustainability in the Eurozone and inflationary pressures in the region continue to cloud the near-term outlook. Singapores economic performance in the second half of the year will be capped by these external developments. In particular, the trade-related sectors, which account for almost half of Singapores GDP, will be most vulnerable to further weakness. However, resilient Asian demand should partially offset these headwinds from the industrialised countries in the next two quarters. At this stage, Singapores GDP growth is forecast to come in at 5-6% for the year as a whole, with a modest increase in economic activity in H2, compared to the first half of the year. Growth will be supported by services which are driven largely by Asian demand, such as in the tourism industry, even as activity in the manufacturing and trade-related sectors remains sluggish. While global market volatility will weigh on the sentiment-sensitive industries, the financial sector should see firm growth for the rest of 2011, anchored by domestic lending activities. If incoming external indicators take a significant turn for the worse, overall activity in the Singapore economy will slow further.

14

F. Macroeconomic Policies
A further tightening in policy stance to ensure price stability over the medium term i) Monetary Policy Following the rapid and broad-based economic expansion in Q1 2011, there was a pullback in domestic economic activity in Q2. While the immediate outlook has been clouded by uncertainty stemming from the series of negative shocks to the global economy, resilient regional demand and steady recovery in the advanced economies will continue to drive Singapores growth and sustain its economic activity at a high level. Meanwhile, inflationary pressures remain strong given the high rates of resource utilisation in the economy. Specifically, the tight labour market could result in stronger wage growth and a greater degree of pass-through to services costs, and eventually higher CPI inflation.
In April 2011, MAS re-centred the policy band upwards. The policy band was re-centred below the prevailing level of the S$NEER, with no change to its slope or width.
108

Appreciation
Index (2 Oct 2009 = 100) 106

104

102

100

Depreciation
98 Oct 2009 Jan 2010 Apr Jul Oct Jan 2011 Apr

indicates release of Monetary Policy Statement

Given these upside risks to inflation, MAS re-centred the S$NEER policy band upwards in April 2011. The policy band was re-centred below the prevailing level of the S$NEER, with no change to its slope or width. MAS latest move took into account the impact of the pre-emptive tightening moves in April and October 2010, which would continue to have a restraining effect on economic activity and prices over the rest of this year. ii) Fiscal Policy The Singapore economy registered record GDP growth of 14.5% in 2010. As such, the key measures of the Resilience Package, put in place in 2009 to help businesses and households tide over the economic downturn, have been fully phased out as of January this year. The overall budget deficit for FY2010 came in at $0.3 billion (0.1% of GDP), significantly lower than the $3.0 billion projected in 15

2010, on the back of higher revenues from the better-than-expected performance of the economy. Budget 2011, announced on 18 February, builds on the medium-term policy agenda initiated by Budget 2010, with additional initiatives aimed at restructuring the Singapore economy in order to enhance productivity over the medium to long term. These measures represent continued steps towards implementing the recommendations charted out by the Economic Strategies Committee (ESC) to support the economy's growth in the next phase of its development. They can be broadly divided into three categories: first, the government has committed $2.1 billion this year in the form of tax benefits, grants and training subsidies to help companies and workers to innovate and deepen their skills and expertise. Second, measures to enable companies to develop growth capabilities, commercialise their R&D and expand abroad were enhanced. Third, the government introduced initiatives to improve the softer aspects of the quality of life in Singapore and make growth more inclusive. These measures have been especially geared towards lower-skilled workers, the elderly as well as the lower-to-middle income households. At the same time, Budget 2011 also contained one-off, targeted measures to assist firms facing rising business costs and to help households preserve purchasing power amidst higher inflation. These include rebates on income taxes, service and conservancy charges, and utility bills. For FY2011, the government is expecting the budget balance as a percentage of GDP to be close to zero, with a small overall budget surplus amounting to around $0.1 billion. Summary of Fiscal Position
FY 2009 $billion Operating Revenue Total Expenditure Operating Expenditure Development Expenditure Primary Surplus/Deficit (-) Add: NII/NIR Contribution Less: Special Transfers Budget Surplus/Deficit (-) 39.5 41.9 30.9 11.0 -2.3 7.0 5.5 -0.8 % of GDP 14.2 15.1 11.1 4.0 -0.8 2.5 2.0 -0.3 FY 2010 Revised $billion 45.5 46.4 34.1 12.3 -0.9 7.8 7.2 -0.3 % of GDP 14.5 14.8 10.9 3.9 -0.3 2.5 2.3 -0.1 FY 2011 Budgeted $billion 48.1 47.1 35.9 11.2 1.0 7.8 8.7 0.1 % of GDP 14.2 13.9 10.6 3.3 0.3 2.3 2.6 0.0

Note: Figures may not tally due to rounding. Source: Ministry of Finance.

16

Selected Indicators
GENERAL INDICATORS, 2010
Land Area (Sq km) Total Population ('000) Labour Force ('000) Resident Labour Force Participation Rate (%)
* Refers to resident population aged 15 years and over.

712.4 5,076.7 3,135.9 66.2

Literacy Rate* (%) Real Per Capita GDP (US$) Gross National Savings (% of GNI)

95.9 41,109 47.8

COMPONENTS OF NOMINAL GDP SECTORAL (% of GDP), 2010

Manufacturing Financial Services Bus iness Services Construction Trans port & Storage Information & Communications Wholesale & Retail Trade Hotels & Restaurants 22.2 11.9 14.0 4.5 8.6 3.6 16.5 2.2

COMPONENTS OF NOMINAL GDP EXPENDITURE (% of GDP), 2010

Private Consumption Public Consumption Private Gross Fixed Capital Formation Public Gross Fixed Capital Formation Increase in Stocks Net Exports of Goods & Services Statistical Discrepancy 37.9 10.7 21.0 4.0 -1.2 28.1 -0.5

MAJOR EXPORT DESTINATIONS (% SHARE), 2010

Total Exports (S$ Billion) Malaysia Hong Kong China Indonesia USA 478.8 11.9 11.7 10.3 9.4 6.4

MAJOR ORIGINS OF IMPORTS (% SHARE), 2010

Total Imports (S$ Billion) Malaysia US China Japan Indonesia 423.2 11.7 11.2 10.8 7.9 5.4

ASEAN NIEs EU
Source: IE Singapore

30.3 19.4 9.8

ASEAN EU NIEs

24.0 12.3 12.7

MAJOR DOMESTIC EXPORTS BY COMMODITY (% SHARE), 2010

Domes tic Exports (S$ Billion) Mineral Fuels Electronics Chemicals Machinery & Transport Equipment (ex. Electronics) Manufactured Articles Manufactured Goods
Source: IE Singapore

MAJOR IMPORTS BY COMMODITY (% SHARE), 2010

248.6 30.2 26.1 17.5 12.0 7.7 2.8 Total Imports (S$ Billion) Electronics Mineral Fuels Machinery & Transport Equipment (ex. Electronics) Manufactured Articles Chemicals Manufactured Goods 423.2 29.1 27.3 17.4 7.0 6.8 6.3

17

OVERALL ECONOMY GDP at current prices (S$ bil) GDP (US$ bil) Real GDP Growth (YOY % change) Real GDP Growth (QOQ SAAR % change) By Sector (YOY % change): Manufacturing 1/ Electronics 2/ Non-electronics 2/ Financial Services Business Services Construction Transport & Storage Information & Communications Wholesale & Retail Trade Hotels & Restaurants By Expenditure Component (YOY % change): Consumption Private Public Gross Fixed Capital Formation Private Public External Demand TRADE Total Exports, fob (YOY % change) Non-Oil Domestic Exports Re-Exports Total Imports, cif (YOY % change) WAGE-PRICE INDICATORS Unemployment Rate (SA,%) Average Nominal Wages (S$ per month) Consumer Price Index Inflation (YOY % change) MAS Core Inflation (YOY % change) FINANCIAL INDICATORS 3/ S$ Exchange Rate Against: (end-period) US Dollar 100 Japanese Yen Euro Interest Rates (end-period, % p.a.) 3-month Fixed Deposit Rate 3-month Domestic Interbank Rate Prime Lending Rate Money Supply (end-period) Broad Money, M2 (YOY % change) Straits Times Index (end-period) YOY % change GOVERNMENT BUDGET 4/ Operating Revenue (S$ mil) Total Expenditure (S$ mil) Operating Expenditure Development Expenditure Primary Surplus/Deficit (S$ mil) % of GDP BALANCE OF PAYMENTS Current Account Balance (% of GDP) Goods Balance Services Balance Income Balance Current Transfers Capital & Fin Account Balance (% of GDP) Financial Account Balance (% of GDP) Direct Investment Portfolio Investment Other Investment Overall Balance (% of GDP) Official Foreign Reserves (US$ mil) 5/ Months of Imports

2009 266.7 183.3 -0.8 na -4.2 -8.5 -2.2 4.3 4.3 17.1 -9.0 1.0 -6.0 -1.6 0.9 0.2 3.5 -2.9 -5.6 18.5 -8.1

2010 303.7 222.7 14.5 na 29.7 35.7 27.2 12.2 5.9 6.1 6.0 2.9 15.1 8.8 5.7 4.2 11.0 5.1 3.5 15.0 19.2

Q1 09 62.1 41.1 -8.4 -8.9 -23.8 -36.6 -18.4 -4.0 5.7 25.1 -12.0 1.6 -12.0 -4.2 -3.3 -2.8 -4.6 -12.3 -16.4 21.0 -18.0

Q2 09 64.5 43.8 -1.3 18.6 -0.5 -19.4 8.3 3.0 3.6 18.5 -11.9 1.0 -9.6 -4.2 -0.9 -2.9 10.2 -5.3 -7.8 18.8 -13.3

Q3 09 68.3 47.5 2.1 13.3 7.5 -1.2 11.8 6.3 3.5 11.4 -10.1 0.8 -5.2 -0.1 3.4 2.3 7.7 0.2 -1.5 12.8 -7.7

Q4 09 71.8 51.5 4.6 -1.5 2.4 28.0 -8.0 12.2 4.4 14.9 -1.6 0.7 3.5 2.1 4.9 4.4 6.6 7.3 5.2 21.1 7.9

Q1 10 73.0 52.0 16.4 39.9 37.2 66.4 27.6 18.9 6.1 9.7 6.6 2.2 16.9 7.2 7.7 6.1 12.0 11.1 9.6 19.4 21.7

Q2 10 76.0 54.7 19.4 29.7 45.2 52.8 42.6 9.9 7.1 11.4 8.5 2.9 18.9 12.5 5.6 5.2 7.6 -1.7 -4.6 19.7 24.4

Q3 10 76.4 56.3 10.5 -16.7 13.7 26.1 8.3 9.7 6.0 6.7 5.2 3.4 14.4 8.2 3.7 1.5 11.8 5.8 4.0 17.2 19.8

Q4 10 78.2 60.0 12.0 3.9 25.5 14.7 31.9 10.9 4.5 -2.0 3.8 2.9 10.8 7.5 5.8 4.3 11.3 5.7 5.8 5.2 12.1

Q1 11 81.9 64.1 9.3 27.2 16.5 12.1 18.4 11.4 4.4 2.4 4.9 3.3 5.0 7.2 3.6 6.1 -2.6 -7.8 -12.4 15.8 8.4

Q2 11 79.2 63.9 0.9 -6.5 -5.9 -7.7 -5.0 10.0 2.2 1.5 4.1 2.4 0.0 6.4 6.4 6.6 5.4 10.0 9.4 13.1 1.8

Jun-11 na na na na 10.7 -15.3 23.5 na na na na na na na na na na na na na na

Jul-11 na na na na 7.4 -18.2 19.6 na na na na na na na na na na na na na na

-18.0 -10.6 -16.6 -21.0

22.4 22.8 20.5 18.8

-27.8 -25.6 -24.1 -27.6

-25.4 -14.5 -23.8 -28.4

-20.0 -7.8 -17.9 -22.8

4.9 8.2 1.9 -2.7

28.2 23.1 24.5 25.5

29.1 27.6 24.6 26.4

20.0 23.7 20.9 15.6

14.5 17.6 13.0 9.7

13.4 12.3 7.2 10.2

6.7 1.9 2.6 8.4

6.0 1.0 -0.3 3.7

3.2 -2.8 -7.4 -3.8

3.0 3,872 0.6 0.0

2.2 4,089 2.8 1.5

3.2 4,155 3.4 2.2

3.2 3,609 0.2 0.0

3.3 3,562 -0.3 -0.7

2.3 4,160 -0.8 -1.4

2.2 4,310 0.9 0.1

2.2 3,819 3.1 1.7

2.1 3,754 3.4 2.2

2.2 4,474 4.0 2.1

1.9 4,677 5.2 1.9

2.1 4,048 4.7 2.2

na na 5.2 2.3

na na 5.4 2.2

1.4034 1.5194 2.0163 0.25 0.69 5.38 11.3 2,897.6 64.5

1.2875 1.5798 1.7120 0.19 0.44 5.38 8.6 3,190.0 10.1

1.5194 1.5450 2.0153 0.32 0.69 5.38 11.5 1,700.0 -43.5

1.4498 1.5115 2.0464 0.27 0.69 5.38 12.9 2,333.1 -20.8

1.4141 1.5752 2.0674 0.26 0.69 5.38 11.3 2,672.6 13.3

1.4034 1.5194 2.0163 0.25 0.69 5.38 11.3 2,897.6 64.5

1.4028 1.5016 1.8789 0.22 0.69 5.38 8.8 2,887.5 69.9

1.4013 1.5822 1.7113 0.21 0.56 5.38 7.3 2,835.5 21.5

1.3175 1.5760 1.7919 0.20 0.50 5.38 8.2 3,097.6 15.9

1.2875 1.5798 1.7120 0.19 0.44 5.38 8.6 3,190.0 10.1

1.2617 1.5248 1.7828 0.18 0.44 5.38 8.7 3,105.9 7.6

1.2292 1.5284 1.7838 0.18 0.44 5.38 10.7 3,120.4 10.0

1.2292 1.5284 1.7838 0.18 0.44 5.38 10.7 3,120.4 10.0

1.2041 1.5528 1.7272 0.18 0.44 5.38 11.9 3,189.3 6.7

37,872 40,483 29,871 10,612 -2,611 -1.0

44,581 44,049 32,755 11,295 532 0.2

8,756 13,073 10,395 2,678 -4,317 -7.0

10,000 7,874 5,269 2,604 2,126 3.3

10,621 9,177 6,695 2,482 1,444 2.1

8,495 10,359 7,512 2,847 -1,864 -2.6

10,430 14,509 11,433 3,077 -4,079 -5.6

11,912 7,888 5,346 2,542 4,024 5.3

12,395 10,360 7,328 3,032 2,035 2.7

9,845 11,293 8,648 2,644 -1,447 -1.9

11,909 15,798 11,948 3,850 -3,889 -4.7

13,572 8,593 6,483 2,111 4,979 6.3

na na na na na na

na na na na na na

19.0 22.2 15.9 20.9 7.7 7.1 -2.4 -3.7 -2.2 -2.2 -14.6 -3.1 -14.5 -3.0 -1.7 8.5 -8.5 -9.8 -4.3 -1.6 6.2 18.9 187,809 225,754 9.2 8.7

18.5 18.4 17.3 21.7 20.8 22.9 25.0 20.1 21.1 18.2 12.2 16.0 16.9 18.2 16.9 22.0 24.1 20.6 20.5 18.4 6.3 6.6 7.3 10.3 7.8 6.9 7.3 6.5 6.6 5.9 2.5 -2.0 -4.8 -4.7 -1.9 -3.9 -4.2 -4.8 -3.7 -3.8 -2.4 -2.2 -2.1 -2.1 -2.1 -2.1 -2.2 -2.2 -2.2 -2.3 -28.0 -19.1 -7.8 -5.6 6.2 -2.9 -17.4 1.9 -13.7 -8.3 -27.8 -18.9 -7.6 -5.5 6.3 -2.7 -17.2 2.0 -13.6 -8.2 -5.8 -0.6 -2.2 1.2 2.5 10.7 9.5 10.9 16.3 8.3 -13.7 -8.5 -12.0 -0.6 -13.5 -5.8 -8.9 -11.2 -11.4 -12.2 -8.4 -9.7 6.5 -6.1 17.3 -7.6 -17.8 2.3 -18.5 -4.2 -5.8 1.6 10.3 16.7 28.8 18.0 8.2 21.1 7.6 6.9 166,251 173,191 182,039 187,809 197,112 199,960 214,662 225,754 234,205 242,287 6.8 7.8 9.0 9.2 8.9 8.5 8.6 8.7 8.6 8.5

na na na na na na na na na na na 242,287 8.5

na na na na na na na na na na na 249,150 8.7

Source: 1/ Monthly data from Index of Industrial Production, EDB

2/ 3/ 4/ 5/

Data from Index of Industrial Production, EDB Straits Times Index from SGX. All other indicators from MAS. Ministry of Finance

MAS na: Not available

18