The ICAEW report Economic Insight: South East Asia is produced by Cebr, ICAEW’s partner and economic forecaster. Commissioned by ICAEW, the report provides its 140,000 members with a current snapshot of the region’s economic performance. The report undertakes a quarterly review of South East Asian economies, with a focus on the five largest countries; Indonesia, Malaysia, the Philippines, Singapore and Thailand.
According to the report, Singapore’s output per hour worked declined 3.5% year-on-year in Q4 2012 across the construction, manufacturing and services sectors. However, it cautions that the statistics can be volatile in the short term and the downturn could reflect the business cycle rather than fundamental overall changes.
ICAEW Economic Advisor and Cebr’s Head of Macroeconomics, Charles Davis, said: “Singapore’s long-term prosperity depends on raising productivity levels and raising real wages right across the population. However, this slowdown should not be seen as dooming Singapore to decline; productivity levels should be seen as a outcome, not a determinant. For example, the sharp fall in manufacturing was down to the financial crisis and the subsequent recovery boosted the figures. If Singapore grows its high-value productive sectors – like finance and ICT– overall productivity will increase. Unemployment remains low, domestic demand is rising, and if the global economy picks up speed towards the end of the year as expected, Singapore’s status as a trading hub means it should reap the benefit.”
“However, it will be important to focus on structural change to raise productivity. Singapore will need to adjust as it moves away from over-dependence on cheap foreign labour.”
The report also warns that current rises in stock prices may be unsustainable. “Stagnation in industrialised nations means investors are turning to emerging economies in search of higher yield” says Charles. “ASEAN stock markets have ridden this wave of capital, sending stock prices skywards. But the growth rates we are seeing in some countries – 20% in Indonesia and 34% in the Philippines – are not sustainable, and could hint of an emerging bubble.”
Strong market investment is also being matched by firms and households taking on higher levels credit. The ratio of debt-to-income had been declining until 2010, but a positive outlook has led to the private sector increasing its debt exposure, which is now in the region of 120-130% for Singapore, Thailand and Malaysia.
Mark Billington, Regional Director, ICAEW South East Asia, said: “Debt levels in the region remain manageable for as long as the projected positive growth story remains. For the moment, debt levels are around half of what they were at the peak of the Asian crisis. This is fine for now but would be a cause of concern if credit growth continues to outpace nominal GDP growth at the same rates we see today.”
“Growth outlook for both Singapore and ASEAN as a whole remains healthy. However careful judgement will be needed to ensure that credit growth and capital inflows are used to lay the foundation for future prosperity and not fuel a bubble.”
For more information and a copy of the report, please visit ICAEW’s website.