It all began on Monday when the Shanghai Composite index closed 8.5% down. Markets across the world then followed suit like a cascading waterfall, everyone on a massive selling spree. Following 6 years of strong growth in the US, Monday might have marked the end of a period of post-crisis prosperity. In the meantime, European markets which have not yet fully recovered to begin with are seeing the boat rocked by another impending financial crisis.
In hindsight, the signs of a Singaporean recession were fairly clear already. Singapore has been in deflation for some time already. Job creation rate has slowed and many fresh graduates are finding it difficult to land a job. Property prices and COE prices, a fair indicator of the buying sentiment in Singapore, have been cooling off for some time now. These show that people are spending less money and consequently, companies earn less money. This further slows job creation rate and the cycle continues, resulting in an economic slowdown. The lowered growth forecast of between 2-2.5% down from the earlier forecast of 2-4% might have been telling of an impending recession already.
Singapore weathered the storm fairly well in 2008/2009. Its companies and institutions took steps to mitigate losses through financial prudence and cutting spending. Opportunities for gain amid the adverse conditions were identified and appropriate risks were taken to seize the best ones. For instance, GIC’s investment in Citigroup’s US Government-led bailout was initially criticised as a bad move by several Singaporeans who complained of the government taking inappropriate risks with its sovereign wealth fund in such an adverse financial climate. The investment ultimately yielded a massive gain of $1.6bn which was realised in a subsequent post-recovery cashout. While there were job losses and pay cuts in some sectors initially, Singapore saw a dramatic post-recession recovery from 1.8% in 2008 and -0.9% in 2009 to 15.2% in 2010 with sustained growth averaging 3-4% in the next few years.
Two things remain to be seen:
- Will this global sellout really mark the start of a global recession?
While global stock markets are an indicator of how well economies will do, they are by no means a true predictor. This global sellout could be the mark of a global recession or simply just an artefact of the speculative nature of global markets. The suspicion of a sellout may trigger further selling, which may lead to greater suspicions and so on, but the market may correct itself when it realises that the initial trigger was a false alarm. It remains to be seen whether a global recession is truly upon us or not.
- Will Singapore be able to weather the storm?
As always, it is important to be prudent and take the necessary steps to ensure that we are able to weather any impending financial crisis. The more conservative forecast is a self-fulfilling prophecy which will likely slow growth down as well. The optimistic SG50 mood set by the recent National Day celebrations may spur consumer spending which will only really be seen in Q4 2015, and lead to a year-end GDP that is above expectations. Singapore has also taken massive strides to improve the productivity of its workers to power through the labour crunch which will see benefits in the longer term, with initiatives to reward companies for training workers and automation. This will allow people and companies to do more with less, allowing for sustained productivity growth. Whether the gains from this will be realised in economic performance this year or even the next also remains to be seen.
On the whole, I’ll be cautiously optimistic about this year. Election sentiment and anxiety may be delaying spending and signalling consumers to be more cautious with where they put their money. Spending may improve when the excitement over elections has died down. I doubt that many of the bigger players and election observers really expect drastic political change, although we will only know for sure once the elections are over.