Donnerstag, 12. März 2009


Of all developed economies, Singapore is hit the worst: According to The Economist, the 2009 forecast is for a 7.2 % contraction (some analysts have even put forward estimates of -10 to -12 %).

Out of curiosity, I looked up their 2008 statistics, and stumbled across some rather unusual data:

2008 labor productivity was down by a massive 7.8 %. The decline accelerated over the year, and reached -12 % in Q4.

First, I thought it was due to the manufacturing downturn: If production goes down, and they can't shed workers fast enough, productivity plummets.

But no:

Every single sector - manufacturing, hotels, financial services, transport, retail, you name it - recorded negative labor productivity.

And not only that, 2007 labor productivity had already been negative (only -0.8 %, but still: 2007 was supposed to be a good year; so why was manufacturing productivity down 3 %, and hotel productivity down 6 %, to name just two examples?).

What is going on here?

It appears that population growth was 5.5 % in 2008, and the workforce grew even more strongly (i.e. they had a massive inflow of working-age immigrants), while GDP was up only 1 %. Average wages were also up a healthy 5 % (per person, not for the labor force as a whole). In other words, unit labor costs were up a massive 13 %.

It looks like Singapore is not really well placed to ride out the downturn: The numbers went all the wrong way in 2008 when GDP was still growing a bit. The economy is focused on international trade (-> collapsing), regional HQs of MNCs (-> cutting back sharply), capital-intensive industries (-> sorry, no more orders) and finance (-> at least the cut-backs will be smaller than on Wall Street, and lots of shady funds are moving over from Switzerland...).

So how are they going to cope with a 7 % GDP contraction?

I suppose what will happen is:

1. Massive repatriation of foreign workers (both low-skilled and professionals)

2. Massive increase in unemployment

3. In spite of 1 and 2, labor productivity will drop further

Again: Manufacturing productivity is already down 14 % over 2 years. And it will almost certainly drop sharply again in 2009. Not a healthy trend, by any measure.

Singapore used to be the country with the world's highest current account surplus in % of GDP: In 2007, it was 25 % of GDP, or 30 bn €. In 2008, it dropped to 16 %, or 19 bn €. As the GDP drop is export-led, it is possible that 2009 will see a surplus of less than 5 % of GDP.

In spite of ugly losses on Temasek's and GIC's investments, Singapore is still exceedingly rich. It can certainly afford a large stimulus to supplement people's incomes (even if that goes against Lee Kuan Yew's Confucian convictions). But it can't do much to stop GDP contraction: As a tiny city-state with fewer than 5 m people, it imports just about everything it consumes. So no matter how they structure a stimulus, most of it will leak into import demand.

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