Cablegate: Export Dependence Drags Down Singapore Economy

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1. Summary: Singapore's export performance recorded a 15- percent
drop in October, the sixth consecutive monthly decline. Singapore's
reliance on exports for a substantial part of its economy helped
drag the country into a technical recession during the third
quarter, a situation unlikely to improve in the near term. Slowing
global demand has broadly hit exports, in particular key electronics
and pharmaceutical exports, although volatility in the
pharmaceutical sector may be overstating the overall impact on the
economy. Services exports, including tourism, offer no respite.
Analysts predict that projected slow demand in the EU, United States
and increasingly Asia will continue to crimp exports and delay any
recovery in economic growth until late 2009. End Summary.

2. The GOS announced November 17 that Singapore's non-oil domestic
exports (NODX) fell 15 percent in October, the sixth straight month
of contraction and the largest contraction since March 2002. This
has been the longest export slump in six years. Worse numbers are
likely to come. A report by HSBC Holdings said the bank expects
that the effects of the recent credit crunch will only be fully
reflected in November and December data. Key leading indicators
suggest that exports will continue to drag well into the first half
of 2009. The Singapore dollar has weakened steadily since July and
offers some relief to exporters, but Singapore's manufacturing
exports tend to have high import content, raising the cost of
inputs. Citigroup analysts expect the global slowdown will keep the
Singapore economy in recession for the next six to twelve months.

3. Singapore's heavy reliance on exports for economic growth helped
make it the first Asian country to find itself in a technical
recession last month, suffering two consecutive quarters of negative
growth in the second and third quarters of 2008 (reftel). Singapore
has a small domestic market and has traditionally depended on its
strategic position at the junction of major trading routes to act as
a distribution hub for the region. Singapore's overall trade is
approximately 3.5 times GDP, one of the highest rates in the world.
The GOS has made a conscious effort over the years to diversify the
Singaporean economy to avoid having a slump in any one industry
dragging the entire economy down. However, the broad and deep
contraction in key export markets has hit a wide array of export

Exports Tough All Over

4. Singapore's non-oil exports to its key trading partners took a
major drop in October and led the overall decline. Exports to the
United States dropped 31 percent year-on-year, the tenth consecutive
month of contraction. Exports to the United States began slowing in
mid-2007 as the sub-prime crisis began to pinch U.S. incomes, and
exports have been off approximately 15 percent since the beginning
of the year. Exports to other regions held up earlier in the year,
but as the effects of the financial crisis have spread around the
globe, Singapore's exports to other regions have begun to see
serious declines in the past few months. Exports to the EU fell 14
percent in October, following a 24-percent contraction in September.
Together the EU and United States markets are the destination for
almost one-third of Singapore's total exports.

5. Exports to Asian markets had been brighter this year, but have
also begun to fall off, reflecting a slowdown in domestic Asian
demand as well as a drop in exports of intermediate goods that are
assembled for final export to developed markets. Exports to China
were down nine percent. Exports to Indonesia were up 6.1 percent,
the only increase in Singapore's top 10 export markets. Exports to
other emerging markets had stayed in positive territory in past
months, but the slide in global commodity prices has hurt the
ability of many developing countries to continue importing at the
same levels. As a result, overall exports to emerging markets are
down 18 percent.

Electronics and Pharma Lead the Decline

6. Exports of electronics manufactures, which make up about 30
percent of Singapore's total manufacturing base, have led the
downturn. Electronics exports contracted for the 21st consecutive
month in September, falling by 15 percent year-on-year. Electronic
consumer products were off 53 percent. The decline was fueled in
part by closure of a Motorola cell phone plant in April, and other
restructuring in the electronics industry.

7. Pharmaceutical exports contracted 39 percent in October,
following a 28-percent decline in September. Pharmaceutical
production is a relatively new industry for Singapore and has become
a key sector, making up 22 percent of overall manufacturing.
However, the production and export figures for this industry are
highly volatile by nature and may have prematurely pushed Singapore

SINGAPORE 00001242 002 OF 002

into a technical recession. Nearly all pharmaceutical plants in
Singapore engage in production of active pharmaceutical ingredients,
which requires production at full capacity for a period of time,
followed by an idle period for cleaning and sterilization to prepare
for the next order. The volatility in the production pattern is
reflected in wide swings in production and export statistics which
can skew overall economic figures. The industry's actual impact on
the economy is relatively light as the pharmaceutical industry is
not closely integrated with other sectors and employment is
relatively low. Nevertheless, pharmaceutical exports have shown an
overall downward trend for the year and have declined at
unexpectedly high rates.

8. Although Singapore has consciously diversified its exports
beyond manufacturing into services, many services are externally
oriented and are also suffering. As regional trade has slowed, so
have Singapore's wholesale trade, transport and logistics services.
A combination of higher air travel costs and the financial crisis
have served to put the tourist industry in its fourth straight month
of decline. Hotel occupancy and room rates are expected to be flat
in coming months despite the upcoming holiday season. The GOS
estimated the industry will not fully recover for another two years.
Financial services that Singapore provides the region have held up
relatively well, but with funding conditions tightening, this sector
is also taking a turn for the worse with numerous financial
institutions laying off staff and cutting costs.

© Scoop Media

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