Monday, February 9, 2009

S'pore GDP may shrink up to 5.8% in Q1

Business confidence plummets as most companies expect situation to worsen: survey

(SINGAPORE) With business prospects hitting lows not seen since 2001, the economy could contract 5.8 per cent in the present quarter, according to the latest BT-UniSIM Business Climate Survey.

The survey, now in its 14th year, polled 167 firms for their business prospects for the next six months as well as sales, orders and profit performance for the last quarter of 2008.

The survey's business prospects data, lagged one quarter, is a strong predictor of GDP which, according to survey director Chow Kit Boey, is expected to contract between 4.5 per cent and 5.8 per cent in the first quarter on a year-on-year basis.

Ms Chow said the worst case scenario could see 18 months of growth wiped out. 'Should the economy contract at the higher end of the predicted range, then Singapore's GDP in Q1 2009 would be close to that in Q4 2006 at 2000 market prices,' she said.

The previous BT-UniSIM survey last November predicted that GDP would fall 1.2 per cent in Q4. In fact, the economy shrank 3.7 per cent year-on-year that quarter, according to preliminary figures from the Ministry of Trade and Industry last month.

GDP may fall 2 to 5 per cent this year, the MTI said, and the current recession, already shaping up to be the worst on record, is not likely to improve until at least the second half of the year, according to analysts.

Ms Chow said that based on her analysis of the business cycle, Q1 is unlikely to see bottom, with at least one more quarter of negative growth expected before recovery.

'This implies that the Singapore economy, which entered a classical recession (two quarters of contraction) in Q3 2008, will contract at a higher rate in the third quarter of its current cyclical phase.'

The pessimism is pervasive. Official business expectations surveys published recently found that confidence plummeted across all sectors of the economy.

The BT-UniSIM survey found that a net balance of over 80 per cent of companies polled saw the situation deteriorating further. The net balance is the difference between the proportion of positive and negative responses.

That is the most downbeat response since the Sept 11 catastrophe.

The sentiment was shared among all types of firms, but foreign companies were the most bearish - almost all surveyed were pessimistic about the next six months. A whopping 36 per cent said things would be getting 'much worse', and only 3 per cent said things could get better.

Sales and profits net balances also turned sharply for the worse. About 40 per cent of firms said that profits fell for the quarter, compared to 9 per cent in the previous survey.

Over 40 per cent said that profits were more than 10 per cent less, double the proportion previously.

Sales were also badly hit in the fourth quarter, with a net balance of 44 per cent of firms reporting lower sales, compared to 9 per cent previously. The figures were similar for both local and overseas sales, suggesting that businesses see the downturn as a global phenomenon.

However, small firms appear the most badly affected, showing the worst performances in all indicators. The net balance for large firms' profit was -36 per cent, compared to -75 per cent for small firms, while small firms encountered the worst sales performance and the largest declines for Q2.

All firms were equally pessimistic over business prospects, while two in five reported much lower orders or new business for the quarter. In sectors, construction - the high flyer for the past 11quarters - has been overtaken by the commerce sector, which is seen as having the best prospects across all sizes and types of firms.

Source: Business Times - 9 Feb 2009

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