MONTREAL - The United States last week
exempted Singapore from sanctions over oil
purchases from Iran just hours before the final
day when sanctions would have taken effect. This
was welcome news that could buoy Singapore in the
second half of the year, when the present economy
recovery is expected to moderate.
China
was also granted an exemption, but smaller
importers including Afghanistan and Pakistan were
not, putting their banks at risk if they process
transactions for oil from Iran.
Singapore's latest economic data permit
some sense of relief but there is tough going
ahead. The city state is one of the "canaries in
the mineshaft" for Asian and indeed global
economic growth because of its higher export
dependence particularly with respect
to developed market
economies.
The bonds ratings agencies give
the economy stellar marks, with Standard &
Poor's, Moody's, and Fitch all giving Singapore
debt their top rating. Reflecting this solidity,
the annual yield on government bonds is quite low,
tending to fluctuate around 1.4% to slightly over
1.5%.
It was therefore good news, and not
for Singapore alone, the purchasing managers'
index (PMI) returned to expansion in May, that
exports increased while inflation moderated, and
industrial production beat the consensus
expectation.
The PMI in May rose to 50.4,
above the neutral 50 level and signifying economic
expansion, as against the contractionary 49.7
figure in April. Singapore's Institute of
Purchasing and Materials Management attributed the
rise to new orders and new export orders.
The overall consumer price index (CPI) in
Singapore moderated in May to 5% year on year,
under consensus expectations and at a three-month
low, down from 5.4% in April. However, it remains
well above inflation during the first decade of
the century, which averaged 1.6%, and of the past
three decades, at 1.8%. Singapore's central bank
raised its core inflation expectation for 2012
from 1.5-2% to 2.5-3%. Some observers think the
final figure may come in at close to 3.5%.
Industrial production rose 6.6% in May
from 12 months earlier. This has been attributed
to "base effects" (that is, an abnormally low
reference point a year ago due to supply
disruptions resulting from the March earthquake
and tsunami in Japan). The month-on-month figure
was up 1.8% over April, beating consensus
expectations.
The transport engineering
sector output was up 35.4% year on year in May,
within which oil rig and ship building was up 44%.
(It is possibly for the delivery of a ship or two
to distort these monthly figures), which hoisted
output from marine and offshore engineering by
44.0%.
Also notable among the various
industry sectors were the biomedical sector, which
led with a 32.8% year-on-year growth due to
pharmaceutical expansion, and the electronics
sector, which lagged with a 9.7% year on year
decline (versus 12.3% in April) due to contraction
in semiconductor production. Excluding the
biomedical sector, industrial production climbed
only 2% in May year on year versus 0.7% in April.
Drawing attention to the continuing
weakness of the electronics sector, the Daily
Breakfast Spread remarked, "The sustainability of
the recovery [in Singapore] is undeniably in
question now." The PMI for the electronics sector
fell in May to 50.8 from 51.5 in April: still
expansionary but flagging.
The UOB Group
concurred that the electronics sector is showing
"only incremental improvement" and opined that
"turmoil and austerity measures in Europe, as well
as the stalled US recovery" will impede its export
growth.
Symptoms of the oncoming slowdown
are to be seen in the decision by the football
club Manchester United to drop its plans for a
stock market listing in Singapore and by Formula
One to postpone indefinitely its own plan for an
IPO on the city's markets. The bringing of
corruption charges in June against two senior
government officials adds to the sense of malaise.
The former head of the country's civil defense
force and the former head of its state
anti-narcotics agency were separately accused in
sex-related cases.
Aside from the stigma
in a civil society that prides itself on a
reputation for efficiency and rectitude, these
charges represent an eventual danger to the
Singapore "brand" reputed for honesty and fairness
in the business sector. In 2011, Transparency
International assigned Singapore a 9.2
reputational rating (ie based on what others think
of it) on a scale of 10, the fifth highest in the
world, behind only New Zealand, Denmark, Finland,
and Sweden.
Popular discontent, notably
among the younger generation, is rising also with
property prices. Yet one-third of Singapore's
population are foreigners, and well-remunerated
professionals who tend to drive inflation upwards
are continuing to move to the Lion City despite
government moves to tighten residency and
citizenship requirements. Housing costs in May
were 8.2% higher than in May 2011.
This
looks set to be a continuing problem for the
government of Prime Minister Lee Hsien Loong,
eldest son of Singapore's first and long-time
prime minister Lee Kuan Yew, who co-founded the
ruling People's Action Party (PAP).
In the
legislative elections in Singapore in 2011, the
PAP won 81 of the 87 seats in the unicameral
parliament elected on the constituency basis.
(Another 12 may be appointed in different ways,
making a total of 99 seats.)
However,
despite thus gaining 93.1% of seats up for
election, the PAP received only 60.1% of all votes
cast at the 2011 elections, the lowest proportion
it has carried since gaining its independence in
1965 from Malaysia (which had become independent
in 1963 with Singapore as a part).
Dr
Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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