Senior Minister of State S Iswaran's reply to Parliament Questions on technical recession

Question No. 591 of Notice Paper No. 215 of 2010Name and Constituency of Member of ParliamentMadam Ho Geok Choo, Member for West Coast GRC

Question

Madam Ho Geok Choo: To ask the Minister for Trade and Industry whether growth in the third quarter of 2010 is likely to slow significantly and whether there exists a possibility of a technical recession.

Answer

Mr. Speaker Sir, on 14 Oct, my Ministry released the advance GDP estimates for the third quarter of 2010. It showed that the Singapore economy grew by 10 per cent on a year-on-year basis in the third quarter of 2010, following record growth of around 20 per cent in the second quarter. However, the growth momentum has declined. On a quarter-on-quarter seasonally adjusted annualized basis, GDP contracted by 20 per cent in the third quarter.

This decline in growth momentum reflects three key factors.

First, there is an expected correction from the exceptional growth in the first half of 2010. After the sharp rebound in the beginning of the year, external demand has eased markedly in recent months. As a result, growth in our externally oriented sectors such as manufacturing and trade-related services moderated in the third quarter.

Second, within the manufacturing sector, there was a sharp decline in biomedical manufacturing (BMS) output. This was due to a switch in the value-mix of products and plant maintenance shutdowns during the quarter.

Third, the construction sector registered a contraction on a quarter-on-quarter basis due to the completion of key commercial and industrial building projects earlier in the year.

Outlook for Rest of 2010

The pace of recovery in the global economy is expected to remain subdued for the rest of the year. This will affect the performance of our manufacturing and trade-dependent services sectors. The BMS cluster could also continue to be affected by some scheduled plant maintenance shutdowns. Therefore, a “technical recession” – which analysts define as two consecutive periods of negative quarter-on-quarter growth – could occur in the second half of the year. If this were to happen, it would largely be a reflection of the sharp swings in the BMS cluster.

However, we remain on track to achieve the overall growth forecast of 13-15 per cent for the whole of 2010. Growth in the rest of the year will be underpinned by a number of industry-specific factors. In particular, continued growth in global demand for electronic products will lend some support to the electronics and precision engineering clusters. Increasing visitor arrivals driven by a resurgent Asian market and new tourism product offerings such as the Integrated Resorts will also continue to bolster tourism-related sectors.