THIRD QUARTER ECONOMIC GROWTH

THIRD QUARTER ECONOMIC GROWTH:

(Possibility of technical recession): 7.

Mdm Ho Geok Choo asked the Minister for Trade and Industry whether growth in the third quarter of 2010 is likely to slow significantly and whether

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there exists a possibility of a technical recession.

The Senior Minister of State for Trade and Industry (Mr S Iswaran) (for the Minister for Trade and Industry): Mr Speaker, Sir, on 14th October 2010, the Ministry of Trade and Industry released the advance GDP estimates for the third quarter of 2010. It showed that the Singapore economy grew by 10% on a year-on-year basis in the third quarter of 2010, following record growth of around 20% in the second quarter. However, the growth momentum has declined. On a quarter-on-quarter seasonally adjusted annualised basis, GDP contracted by 20% 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.

Mr Speaker, Sir, 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 biomedical manufacturing (BMS cluster) could also continue to be

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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 achieving the overall growth forecast of 13%-15% 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 our tourism-related sectors.

Mdm Ho Geok Choo (West Coast): Thank you, Senior Minister of State, for the response. I have two supplementary questions: firstly, what are the strategies in place and how prepared are we to meet such an eventuality of a declined growth in Singapore; and secondly, how will the United States plan to deflate its economy and boost its exports impact the global economy, in particular Singapore's?

Mr Iswaran: Mr Speaker, Sir, Members would be well aware that opinion is divided on the impact the quantitative easing announced by the US Federal Reserves will have on the US economy. In any event, it is likely to have countervailing implications for us. On the one hand, yes, the Singapore dollar will appreciate vis-à-vis the US dollar. However, if the quantitative easing succeeds in stimulating consumption and business investment, then that in turn will have a positive impact on our economy. So, it is too early to judge how this would play out and impact our economy and, indeed, Asia and other countries. As far

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as our strategy is concerned, as I said earlier, the expectation is that growth will moderate in the second half and in 2011 to a level that is more sustainable. Our strategy is to ensure that we remain a well-diversified economy and emphasise key elements of competitiveness including productivity, which is an object of the Committee headed by the Deputy Prime Minister.