Country Report Singapore June 2009

Outlook for 2009-10

• Despite recently proposed political reforms, the ruling People's Action Party (PAP) will remain the dominant force in politics in 2009-10. However, it will face challenges to its authority and popularity amid the economic downturn.
• The government will rely on a policy of fiscal expansion to reduce the impact of the global recession on the domestic economy. The government's fiscal reserves are plentiful, enabling it to raise spending.
• The Monetary Authority of Singapore (the central bank) will keep monetary policy loose by allowing the Singapore dollar to stay relatively weak. However, it will not permit a rapid drop in the currency's value.
• Real GDP is forecast to shrink by 8.6% in 2009, as the export-dependent economy will suffer in the global economic downturn. The economy will enjoy only a modest rebound in 2010.
• Singapore will record mild deflation in 2009, owing to the forecast contraction in domestic demand and falling global prices for oil and industrial raw materials. Prices will rise again in 2010, but only marginally.
• Despite the forecast drop in export revenue, a contraction in imports will ensure that the current account remains in surplus in 2009-10.

Monthly review

• The prime minister, Lee Hsien Loong, has announced proposals to reform the electoral system, including having a guaranteed minimum of nine opposition members of parliament, up from the current minimum of three.
• The government is pushing ahead with its expansionary fiscal policy agenda, and the latest budget figures show a sharp year-on-year rise in expenditure in recent months.
• In the wake of its unsuccessful foray into Western markets, one of Singapore's sovereign wealth funds, Temasek Holdings, has revised its investment strategy, reducing its exposure to the US and Europe.
• Singapore's export-dependent economy shrank for a third successive quarter on a year-on-year basis in the first quarter of 2009. Real GDP fell by 10.1%, the sharpest decline since records began in the mid-1970s.
• Singapore's three leading domestic banks, DBS, United Overseas Bank and Overseas-Chinese Banking Corp, all recorded a drop in profits in the first quarter. However, the falls were not as sharp as had been expected.
• Singapore experienced its first month of deflation in almost four years in April. According to the Department of Statistics, consumer prices fell by 0.7% year on year.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52