Singapore Business Forecast Report Q4 2009

Light At The End Of The Tunnel? Singapore's economy likely staged a mild rebound in Q209, following a revised 10.1% year-onyear (y-o-y) contraction in the previous quarter. The anticipated improvement is due in large part to the moderating export declines that were seen in the last few months. However, we caution that the export figures are still deep in negative territory and it may be several more months before the numbers turn positive. Meanwhile, the aggressive fiscal policy implemented by the government should continue to cushion against further economic slowdown. As such, we are maintaining our forecast of a contraction of 7.2% for Singapore's economy this year, followed by a mild recovery of 1.3% in 2010.

Meanwhile, Malaysian Prime Minister Najib Razak's visit to Singapore in May provides an opportunity for the two countries to further co-operation and resolve long-standing issues. In particular, Najib's main aim is to attract more Singaporean investment into the Iskandar Malaysia project in Johor. Collaboration in this area may in time lead to the thorny issues regarding water, railway land and the Causeway being resolved. A proposal for the construction of a third bridge (symbolising improved relations) connecting Singapore and the neighbouring Malaysian state of Johor is also being mooted.

Singapore's inflation has ticked into negative territory and this will likely persist in H209, driven by weak demand. However, with rising oil prices and moderating export declines, it is conceivable that disinflationary pressures may ease as early as the beginning of 2010. Nonetheless, we expect Singapore's end-2009 inflation to come in at -0.5%, marking the first decline in full-year prices since 2002. Meanwhile, we also expect the Monetary Authority of Singapore to err on the side on caution and maintain a neutral bias in the upcoming policy meeting in October in order to sustain export competitiveness.

Singapore's fundamentals remain strong. Indeed, Singapore achieves high marks for the infrastructure, institutions and market orientation components of BMI's business environment rating, taking the top position with an overall score of 83.8, ahead of rival Hong Kong. Even though Singapore is badly affected by the global slowdown, we do not expect the recession to have any lasting impact on the country. Its business friendly policies and open economy place it in a good position to recover when the global economy picks up.