Home loans hinder Singapore recovery
No other Asian economy – not even Hong Kong, South Korea or Taiwan -- is expected to shrink so sharply. Most, in fact, are expected to continue to grow. (See chart at the end of this post. The report excludes Japan.)
And the reason Singapore is expected to fare so badly?
It’s not just because Singapore has gone into “high-value industries such as biomedical manufacturing which depend on demand from industrial countries at the heart of the crisis”.
Singapore’s problems are exacerbated by the property market, according to the bank, which released the Asian Development Outlook 2009 report today.
The high level of home ownership – more than 90 percent in Singapore – and the attendant financial liabilities have “suppressed disposable incomes and hence consumption,” says the bank.
Hong Kong consumes more than Singapore, it adds. About Hong Kong, it says:
GDP is forecast to fall by 2 percent in 2009. In 2010, growth is expected to resume at about 3 percent.
The bank says about Singapore:
The deep contraction in this city-state of 4.8 million people brings into sharper focus the lack of domestic demand base that could cushion the effect of an external shock such as the current one.
In this regard, there has been a remarkable reduction in the ratio of private consumption to GDP in recent years. Strong growth of exports can partly account for this drop. However, the share of consumption has been more or less stable, at a far higher level, in Hong Kong, China, a comparable economy.
A more structural explanation is that high levels of home ownership and correspondingly high levels of financial liabilities have suppressed disposable incomes and hence consumption. One possible policy option is to open up more avenues for households, especially older households, to convert their housing wealth into purchasing power.
The report adds:
Private consumption growth slowed to 2.4 percent in 2008, less than half the rate of 2007. Deteriorating labour market conditions have led to concerns over job security and an erosion of consumer confidence. Higher government consumption bolstered overall consumption growth to 3.6 percent.
The bank says the government’s 20.5 billion Singapore dollar (about $13.5 billion) economic stimulus package “will at most limit the severity of the recession”. It adds:
Uncertainty surrounding the economy is likely to intensify during the first half of 2009, and this will induce households to save rather than spend. Job market conditions are expected to worsen before they get better. As a result, private consumption is set to contract in the first half. The weakening in trade and manufacturing bodes ill for equipment investment, which is likely to contract during the first half. The one area of private domestic demand that remained robust in 2008—construction investment—is likely to weaken in 2009 in response to a stagnant housing market. Any significant boost to domestic demand will have to come from the Government.
Here are the bank’s GDP growth forecasts for 2009 and 2010 (percentage change from previous year):
Country | 2008 (actual) | 2009 | 2010 |
China | 9 | 7 | 8 |
Hong Kong | 2.5 | -2 | 3 |
South Korea | 2.5 | -3 | 4 |
Taiwan | 0.1 | -4 | 2.4 |
Mongolia | 8.9 | 3 | 4.5 |
Indonesia | 6.1 | 3.6 | 5 |
Malaysia | 4.6 | -0.2 | 4.4 |
Brunei | 2.7 (est) | -0.4 | 2.3 |
Philippines | 4.6 | 2.5 | 3.5 |
Singapore | 1.1 | -5 | 3.5 |
Thailand | 2.6 | -2 | 3 |
Vietnam | 6.2 | 4.5 | 6.5 |
Cambodia | 6.5 | 2.5 | 4 |
Laos | 7.2 | 5.5 | 5.7 |
Myanmar | ? | ? | ? |
Bangladesh | 6.2 | 5.2 | 5.6 |
India | 7.1 | 5 | 6.5 |
Pakistan | 5.8 | 2.8 | 4 |
Sri Lanka | 6 | 4.5 | 6 |
Nepal | 5.3 | 3 | 3.5 |
Bhutan | 11.5 | 5.5 | 6.5 |
Maldives | 5.7 | 1 | 1.5 |
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