Mar 5, 2009

Who Needs the MTI? Mr Wang's Readers Are Cleverer

Maybe minus 10%:
MM Lee GIC portfolio also takes a hit, down 25 per cent from peak
Thursday • March 5, 2009
Christie Loh deputy business editor

MORE than just a numbers game, worsening projections of Singapore’s economic growth are showing just how closely tied the country’s fortunes are to global goings-on.

Painting the most dismal outlook thus far by a Government official, Minister Mentor Lee Kuan Yew yesterday said the economy could shrink by an unprecedented 10 per cent, should international trade continue to falter.

“PSA cargo’s gone down by 30 per cent. So, we immediately shifted our expectations from minus 5 to minus 8,” he told corporate leaders at an hour-long dialogue organised by news information firm Thomson Reuters.

“If the second quarter shows a further drop of 30 to 40 per cent, it might go down to minus 10,” said the Minister Mentor.

Prime Minister Lee Hsien Loong had last week said the economy could shrink by 8 per cent, after the Government’s forecast in January of a worst-case 5 per cent contraction.

This is pretty scary, considering that in January 2009, the Ministry of Trade & Industry's forecast was around +1% to -2%. Just one and a half months later, Hsien Loong is saying -8% and Kuan Yew is saying perhaps even -10%.

Yet was it really that unpredictable? Ahem. In January 2009, one of my readers, who calls himself "The", was already pointing at the figure -10%. Back then, he had left the following comment on one of my posts:

"Looks like the perfect storm is brewing for the Singapore economy. The economists at the MAS/MTI, even if they are cognizant, are unlikely to put up a realistic forecast for fear of panicking the people.

The private sector economists are too polite or too kiasu to go against the official forecast.

Let me, a non-economist, cast the first stone and stone the first cast-in-stone forecast. The composition of Singapore's GDP (2007) is as follows:

Manufacturing 23.7%
Financial & Biz Services 24.6%
Wholesale &
Retail Trade 16.0%

These 3 sectors alone account for some 64.3% of Singapore's economy.

Given the global financial tsunami and contraction in trade, it is realistic to assume a contraction of 15% in these sectors, which means GDP shrinking by 9.6%. Assuming a more conservative contraction of 10% for the 3 sectors, GDP will shrink by 6.4%.

So, my quick and dirty forecast for Singapore's 2009 GDP growth - a decline of 6.4% to 9.6%. Let's take the mid point -- minus 8.0% GDP growth for 2009.

And the official MTI forecasters are still mucking around -2% to +1% growth for 2009.You heard it here first - from a non-economist.

20 January, 2009 15:59"

Another one of my readers (he was "Anonymous") left the following comment, also back in January 2009. The reference in his first paragraph was to a Credit Suisse report predicting 300,000 job losses in Singapore, in 2009:
"Mr Wang,

DOS has just calculated that the latest monthly wage in Spore is S$2,500.00,so if 300,000 get the walking tickets,straight away 4% off the GDP,should be more as of the remaining employees,many are getting up to 30% wage reduction.

Traditionally,corpoare profit accounts for close to 50% of our GDP,and under averge recession,corporate profit should decline by 20%,this round the decline should definitely be much higher.

Even a 20% reduction means another 10% drop in GDP.

Minister Tharman & PM Lee have both grossly under estimated the seriousness of the current situation."
Remember, you read it here first, on Mr Wang's blog. Sure, LKY will tell you the same thing .... much later.


Anonymous said...

And if LKY said something first before Mr Wang's readers, remember to call LKY a bluff:

"THE GOLDEN PERIOD shines forth in SINGAPORE" LKY 2008

Time for the old man to disintegrate.

Anonymous said...

Can you put it on record that I say no amount of money can save Citi and AIG lest America becomes bankrupt? :D

Anonymous said...

I don't understand why our leaders like to speak the obvious. By the time when they say this or that, it's already happened and already damn obvious, and by then, it's already too late and the figures are already of zero use as many people already reach that figure le.

When can they predict sth way before it happens? i really hate all that sub prime analysis articles pretending to know or explain the reasons behind the crisis when none of these writers could actually predict the onslaught in the first place. These "analysis" or ";rediction" is pretty much with the benefit of hindsight when everything has happened already. So much for far-sightedness.

Trebuchet said...

Knowing the way our government works, I don't think Tharman's real forecast is a sanguine one. I think he knows that he cannot be the person to unleash it 'cold' on the unsuspecting (haha) populace.

It's normally the case that the government must be seen as the father and mother of the people, the harbinger of doom, the light of hope, and the sentinel of peaceful times. It's a pity that the talent pool is so limited, or culled so crudely.

Anonymous said...

i also want to put on record! the global economy will recover one day!!! MUAHAHAHHAHHAA!!! mark my words it will come true ok!!

in any situation, in any mkt condition, someone will say east, someone will say west, and eventually someone will say:"i told you so". the most impt thing is: wat say you? coz nothing else matters except your own voice. you lead your own life

Anonymous said...

But LKY also said "GIC can weather the storm for 10 years if necessary".

Wah, how about that? Will you put it in the same category of his "Golden period" or "invest long term, 20 to 30 years" type of statements?

Even if GIC can, can Singapore and our peasants also can?

Anonymous said...

Oh and don't forget LKY's pronouncement on Asia being decoupled from the US and hence Asia would be safe from the US storm. Look what is happening now.

Anonymous said...

Here is my prediction on GIC "investment" on Citi -

Citi will be nationalized and GIC will lose all its money.

It's only a week or so ago that GIC converted its preferred shares to common stock at a price of $3.25. Today, Citi stock is trading under $1. Yes, Citi is the new penny stock! That is a whopping 70% loss in just one week. This is not going to be a 10-year investment.

Btw, the other banking "investments" are also flushing down the toilet in record time.

Anonymous said...

I put it on record here that Citibank will be declared bankrupt by August 2009 latest & fully nationalized by Obama's Adminstration. Oops, there goes our gahment's investment too.

August is always a seismic shift in the stock, futures & financial markets. I should know cos I trade forex as a part time hobby to raise my makan money. In August 2007 we had the first seismic shift followed by the August 2008 greater seismic shift with the fall of Lehman Brothers. By that time in August 2008, I knew that the worse was to come to Spore & our gahment would be LYING to hoodwink the gullible public.

AndrewGung said...

GDP shrinking everywhere.. but Wen says China would maintain the +8% GDP.
If that comes true.. then would we be affected? hope our GDP wouldnt shrink so much..

sigh CPI said...

Mr Wang, let us readers of your blog point out ONE more thing.

Notice that there has been no announcements on CPI (Consumer Price Index) for the past few months?

Are we allowing businesses to survive by keeping prices high or even higher while all of us are getting retrenched and wage cuts in a worsening recession? Low wage + unannouced CPI. Somebody is shooting all the wrong targets!

Long Term Investment said...

"In the long run we are all dead."
John Maynard Keynes
A Tract on Monetary Reform (1923) Ch. 3

Anonymous said...

Why do you care or believe what LKY says? Remember, he's a f**king POLITICIAN!

Anonymous said...

the government only states the obvious. in a separate but also equally important issue, wang kan seng said in a sunday times' report recently that the escaped terrorist is either in singapore or hiding outside singapore.

yeah right. my grandmother also know that, my millionaire minister!

David Chappell said...

"...Wen says China would maintain the +8% GDP."

To paraphrase a cliche, there are lies, damned lies and Chinese economic figures.

Anonymous said...

what sort of brilliant analysis u expect from talented multi-millionaire pap ministers when one of them can tell u that a escaped prisoner is either still in singapore or not in singapore???
anyway he actually strained to come up with that ok. originally he wanted to say the mas is either dead or still alive.

Anonymous said...

This is the same person who wrote that the East had decoupled from the West. What did anyone expect?

Anonymous said...

Why Andy Xie had to leave.......

Anonymous said...

Funny - all these lemming-like kiasu politically-correct economists and analysts. When the official forecast was -2% to -5%, all their forecasts were within the -5%. After PM said -8%, now they are all edging towards -8%. When are they going to move down to MM's -10%?

* * *

Analysts more bearish on Singapore

SINGAPORE, March 20 — Economists at major foreign banks have slashed forecasts for Singapore’s economic outlook, as the slumping global economy batters its key export sector.

Goldman Sachs, for example, now believes Singapore’s economic output will shrink by 8 per cent this year compared with last year. It previously forecast a 4 per cent slide.

The United States bank is among the most bearish in terms of outlook.

Credit Suisse expects a 6.5 per cent contraction. Its earlier forecast was for a fall of 5 per cent. HSBC now sees a 7 per cent slide, after earlier predicting a 5 per cent retreat.

If that 7 per cent figure proves correct, it would easily be Singapore’s poorest performance since the data was first compiled in the mid-1970s, HSBC said.

All the downgrades came shortly after Minister Mentor Lee Kuan Yew raised the possibility that the economy could shrink by as much as 10 per cent this year.

Speaking earlier this month, Mr Lee said this could happen if Singapore’s exports continue to drop at the same speed as they did earlier this year.

They fell 24 per cent in February.

Analysts say that given the open nature of Singapore’s economy, the downturn would hit almost all sectors.

Goldman Sachs analysts argue that Singapore has one of the “highest exposures” to weakness in external demand. This is because the country has a high ratio of exports to overall economic output and because exports drive a large part of its domestic demand.

“We maintain our call that the Monetary Authority of Singapore is likely to weaken the Singapore dollar by shifting the policy band lower at its next scheduled policy meeting in early April,” they said in a report.

A weaker currency would make Singapore exports more competitive.

HSBC economist Robert Prior-Wandesforde said in a report that the Singapore economy is still in the process of adjusting after a period of excess, with the real estate bubble bursting and investment now contracting.

“In particular, it seems to us that capital spending has a lot further to fall in both absolute terms and as a percentage of gross domestic product,” he said.

“We would be surprised if it led any future upturn, and it could remain relatively soft for at least a couple of years.”

Other economists say these banks” new forecasts might not be “in the money”. In other words, the Singapore economy might not emerge in as bad a shape as suggested by the forecasts.

“I was the most pessimistic last year and I'm now taking a more nuanced view,” said Citigroup economist Kit Wei Zheng.

He said he was the first to predict an outright contraction in this year’s economic output for the full year. He made the call — for a 1.2 per cent slide — shortly after US investment bank Lehman Brothers collapsed in September last year.

He now expects a 4.9 per cent slide, the most optimistic of the forecasts.

Standard Chartered Bank economist Alvin Liew said: 'This will be a challenging time for the global economy, Singapore included, but many countries have come up with stimulus packages and taken unprecedented steps with quantitative easing.”

Broadly, quantitative easing refers to moves by central banks to increase the money supply as they try to make credit more readily available.

Liew feels Singapore might see “a mild recovery at the tail end of this year”. — The Straits Times