The Singapore numbers don't look good. A bit surprising perhaps and no reason to panic, but definitely a cause for concern in the short-term future. Some highlights:
- The PMI (Purchasing Managers' Index) was down about 0.8%, that's contraction for 3 consecutive months
- Industrial Production down by 2.2% yoy in August surprisingly?
- Exports for August plunged 10.7%.
Although Singapore's economy is not over-exposed to electronics demand and the sector as a whole should see a slight boost ahead of the holiday season, the electronics PMI still fell by 0.7 points.
The problem is the not-so-short-term. Three bogeymen of varying impact -
The ever-faithful eurozone crisis,
A potential fiscal cliff in the US
The should-be-considered-more slowdown (slowdown?) in China.
Q3 for Singapore is definitely not good but it's possible that global easing measures have somewhat of an impact on the real economy thereby helping slowing economic activity a fair bit. More importantly, the MAS's focus on inflation is likely to ease and result in an easing of monetary policy. It's a bit confusing from what I've been reading. For the most part, it seems everyone thinks it likely but I've heard a few say it's almost a coin-flip. I don't think there's any question. Firstly, inflation data looks more promising which it most certainly didn't not too long ago:
Clearly, the divergence has held back (July '11 and Feb '12), perhaps reflecting accommodation cost changes.
Secondly, exports have clearly been suffering and the effective exchange rate, it seems, has appreciated a bit too rapidly:
It's not the differential that's worrying, but rather the rapid pace of appreciation since the start of the year. Which leads me to believe that it's still very possible that the MAS goes with what they decided in their last review.
The general talk seems a bit morose, to be honest. Generally, the SGD should act as somewhat of a safe-haven currency with international investors, more-so given the global easing announcements from the three major central banks.
External demand conditions are damp and strengthening global headwinds (declining PMI's in key export markets), as DBS pointed out, are relatively strong indicators for the manufacturing sector. There's no need to use the 'R' word at all no matter how probable it technically is.
The next two or three months seem pretty important. And the next week or so will be quite important for the MAS which seems to be stuck in a conundrum because it could seem a bit too soon to ease off under a false sense of bringing inflation under check. According to an economist at Mitzuho, "there is no easy policy response to fragile demand conditions with supply side inflation risks".
I think a policy redress might be a bit premature. A slight easing might help but it might also help in undoing the hard work been put in to tackle a stubborn inflationary trend. The greater issue is the vulnerability and downside risks in major global economies and that's something that domestic monetary policy cannot account for.
It's just a bit too soon for some easing, but most may not quite see it that way.
- The PMI (Purchasing Managers' Index) was down about 0.8%, that's contraction for 3 consecutive months
- Industrial Production down by 2.2% yoy in August surprisingly?
- Exports for August plunged 10.7%.
Although Singapore's economy is not over-exposed to electronics demand and the sector as a whole should see a slight boost ahead of the holiday season, the electronics PMI still fell by 0.7 points.
The problem is the not-so-short-term. Three bogeymen of varying impact -
The ever-faithful eurozone crisis,
A potential fiscal cliff in the US
The should-be-considered-more slowdown (slowdown?) in China.
Q3 for Singapore is definitely not good but it's possible that global easing measures have somewhat of an impact on the real economy thereby helping slowing economic activity a fair bit. More importantly, the MAS's focus on inflation is likely to ease and result in an easing of monetary policy. It's a bit confusing from what I've been reading. For the most part, it seems everyone thinks it likely but I've heard a few say it's almost a coin-flip. I don't think there's any question. Firstly, inflation data looks more promising which it most certainly didn't not too long ago:
Clearly, the divergence has held back (July '11 and Feb '12), perhaps reflecting accommodation cost changes.
Secondly, exports have clearly been suffering and the effective exchange rate, it seems, has appreciated a bit too rapidly:
It's not the differential that's worrying, but rather the rapid pace of appreciation since the start of the year. Which leads me to believe that it's still very possible that the MAS goes with what they decided in their last review.
The general talk seems a bit morose, to be honest. Generally, the SGD should act as somewhat of a safe-haven currency with international investors, more-so given the global easing announcements from the three major central banks.
External demand conditions are damp and strengthening global headwinds (declining PMI's in key export markets), as DBS pointed out, are relatively strong indicators for the manufacturing sector. There's no need to use the 'R' word at all no matter how probable it technically is.
The next two or three months seem pretty important. And the next week or so will be quite important for the MAS which seems to be stuck in a conundrum because it could seem a bit too soon to ease off under a false sense of bringing inflation under check. According to an economist at Mitzuho, "there is no easy policy response to fragile demand conditions with supply side inflation risks".
I think a policy redress might be a bit premature. A slight easing might help but it might also help in undoing the hard work been put in to tackle a stubborn inflationary trend. The greater issue is the vulnerability and downside risks in major global economies and that's something that domestic monetary policy cannot account for.
It's just a bit too soon for some easing, but most may not quite see it that way.
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