Singapore
online.wsj.com
Riding the Global Tide
By RICHARD BORSUK
SINGAPORE -- Just beginning to recover from a sharp economic downturn, trade-dependent Singapore now faces the possibility of slipping back into recession next year.
Only weeks ago, Singapore appeared headed for inflation-adjusted growth of about 4% this year, a nice rebound from a 2% contraction in 2001. Key electronics exports were expanding and the depressed local property market was beginning to rally.
Then came a wave of bad news. Jitters over war with Iraq, a faltering U.S. economy and the shutdown of U.S West Coast ports, in a still-unresolved labor dispute, clouded Singapore's outlook. That was before an apparent terrorist bomb killed more than 180 people on the Indonesian island of Bali and cast a pall over already troubled Southeast Asia.
"All bets are off" on how Singapore will perform in 2003, Deputy Prime Minister Tony Tan said after the Bali bombing. Many economists believe growth can pick up next year, but they concede their forecasts are fragile.
The Singapore economy "rises and falls on the global economic tide," says Rajeev Malik, senior economist at J.P. Morgan Chase Bank, who has cut this year's growth forecast to 2.2% from 5% and next year's to 3.0% from 6%.
Growth in electronics production -- which accounts for more than half of Singapore's nonoil exports -- has slowed in recent months as U.S. demand for Singapore-made components and equipment weakened. Reflecting the downturn, one of Singapore's key manufacturers, partly state-owned Chartered Semiconductor Manufacturing Ltd., is expected by some analysts to lose more than $400 million this year, in part because of the softening market. This follows losses of $384 million in 2001.
Singapore: Economic Overview
Two other key Singapore-based industries, petrochemicals and pharmaceuticals, had good first-half performances. However, Morgan Stanley economist Daniel Lian says they are "unlikely to spur a strong recovery in domestic private demand" and they have little impact on local income and jobs.
Singapore planners are trying to develop new sectors, such as biotechnology, but these businesses don't quickly lift exports. Meanwhile, electronics production will continue to be crucial. "We should ensure that electronics remain a key pillar of the nation's economy," Senior Minister of State for Trade and Industry Tharman Shanmugaratnam said recently. "We do not have the critical mass of manpower, skills and capabilities to support a truly diversified economy."
Some Singapore businesses are trying to innovate to weather what Mr. Tharman calls the current "sea of turbulence." Fresh Direct, a fruit-delivery firm created to take orders online, now does much of its business by telephone because many people didn't want to make purchases by computer. The company also has expanded to vegetables. "The Singapore market was just too small to give us and many dotcoms enough business," says Desmond Lee, a Fresh Direct partner who adds that some customers are trimming their purchases, and margins "are getting thinner."
Another sign of Singapore consumers' worries is declining retail sales. (In August, they fell by 6.8% from July and by 8.4% from August 2001.)
Terry O'Connor, managing director of Courts Ltd., a major retailer of home appliances and furnishings, is trying to revamp his business during what he calls a "patchy and not consistent" recovery. Sluggish sales have caused two Japanese-owned department store chains, Sogo and Daimaru, to close their Singapore branches in the past two years. But Courts has been increasing its sales space, opening five new stores to replace three older outlets.
For other businesses, there is still faith that Singapore-with per capita annual income of about $23,000-has enough wealthy consumers to sustain modest growth. Andrew Tjioe, president of the Tung Lok Group, opened his 21st restaurant this month. "No matter how tough times are, there are still people who can spend," says the proprietor of the group that runs House of Mao and some other theme-restaurants.
Singapore remains politically stable, though concerns have increased that the country could harbor Muslim militants with links to al Qaeda's terror network. The government has detained more than 30 Singaporean Muslims, who it alleges were part of a group that plotted attacks against foreign and Singapore targets in the city-state. Prime Minister Goh Chok Tong said the plots have "worrying implications for our multiracial and multireligious society."
--Mr. Borsuk is a staff reporter in The Wall Street Journal's Singapore bureau.
Write to Richard Borsuk at richard.borsuk@wsj.com
Updated October 28, 2002 |
