Here's to a sweet, export-led 2014

PHOTO: Here's to a sweet, export-led 2014

A year that was supposed to bring only moderate growth for Singapore's economy turned out to be much better than expected.

With two straight quarters of surprisingly strong expansion, the Government ended up upgrading its 2013 growth forecast not once but twice: from between 1 per cent and 3 per cent growth originally to between 3.5 per cent and 4 per cent now.

And given the global economy's brighter outlook in 2014, Singapore seems poised for another year of healthy growth, this time driven by exports.

Just last week, a Monetary Authority of Singapore poll showed that private sector economists expect the local economy to grow 3.8 per cent this year and 3.9 per cent next year.

This comes amid a new dawn for the world economy: the end of the global financial crisis and a much-awaited return to sustained global growth. Bullish experts tip that the global economy will hit a "sweet spot" in 2014, with a steady recovery and few worries about runaway inflation.

This means that even as the US Federal Reserve starts to taper its massive monetary stimulus next year, it - and other key central banks worldwide - should be able to keep short-term interest rates near zero, further fuelling the expansion.

"The uncertainty has not fully dissipated, but going into 2014, it has diminished, and in turn this spells a more positive dynamic for the global economy," noted Barclays Economic Research.

Economists expect the US to emerge decisively from the crisis, Europe to recover from recession, and China and other emerging economies to stabilise - all at once next year.

Thus, they project that the global economy will grow at its fastest pace in four years in 2014, rising at least 3.4 per cent from less than 3 per cent this year.

Wired into the world

THIS is clear cause for optimism in Singapore, where exports have been one of the few weak spots in the past year.

Singapore's non-oil domestic exports (Nodx) fell 7.1 per cent in the first nine months over the same period a year ago, but then rebounded unexpectedly in October.

Economists expect the nascent momentum in shipments to accelerate next year. Singapore's trade-dependent economy usually responds quickly and sharply to a global pick-up or downturn.

"Singapore is the most sensitive economy to external growth in the region," said ANZ Asia-Pacific economist Daniel Wilson.

He noted that for a 1 percentage point change in the G-3 economies' growth, one would expect Singapore's growth to shift by 1.8 percentage points.

The Republic's economy is more or less evenly exposed to three major economic groupings - ASEAN and emerging markets; North Asia excluding Japan; and the G-3, which comprises the United States, Europe and Japan.

The brighter G-3 outlook should be able to outweigh a slowdown in the emerging markets, Mr Wilson reckoned.

Trade agency IE Singapore is also tipping a better performance next year, with Nodx growth of 1 per cent to 3 per cent - a turnaround from the 4 per cent to 5 per cent contraction expected for this year.

This year's low base plus the anticipated pick-up in external demand should give a double fillip for exports in 2014.

This in turn will boost other sectors of the economy. Trade-related industries such as manufacturing, wholesale and retail trade, and transport and storage services will ride the wave, said UOB economist Francis Tan.

Singapore's manufacturing sector makes up about a fifth of the economy. Two-thirds of the country's manufacturing output is produced for export.

Key steps forward in several historic trade deals involving Singapore should also give rise to more optimism in the sector.

Singapore's free trade agreement (FTA) with the European Union is tipped to kick in next year, boosting local exports to the EU by €3.5 billion (S$6 billion) in 10 years, according to the European Commission's directorate-general for trade.

This figure probably under-estimates the full benefit to the Singapore economy, say economists. Significant gains from the FTA will arise from non-tariff barriers such as hygiene checks and quality control inspections, which are harder to quantify.

Then there is the Trans-Pacific Partnership (TPP) regional trade pact. Talks are expected to be concluded by next April, providing a further feel-good factor in the regional trading environment.

The TPP's 12-member nations, which include the US, Japan and Malaysia, are a massive market for Singapore businesses, with 790 million people and total economic output of about US$28 trillion (S$35 trillion) last year. They make up nearly $300 billion, or more than 30 per cent, of Singapore's goods trade last year.

Potential circuit breakers

BUT it will not be all smooth sailing for the Singapore economy in the new year.

Some storms could arise, with the chief risk stemming from the Fed's trimming of its hefty monetary stimulus. This "tapering" will certainly kick in at some point in 2014, and could rock financial markets and demoralise global business confidence.

But economists feel that such tapering will have little real impact on the Singapore economy.

CIMB regional economist Song Seng Wun said: "It'll be flagged well in advance. It may create a bit of a wobble, but it won't be serious enough to develop into a drag on global growth."

Moreover, HSBC economist Leif Eskesen noted that tapering is likely to be accompanied by a US economic recovery, resulting in positive spillovers to Singapore and other export-dependent economies through trade.

But this could be tempered somewhat by the stronger Singdollar, relative to weakening regional currencies, and may dampen the competitiveness of local exports.

Costs are also rising, with businesses grappling with higher wages and rents. This may lead to sharper inflation, especially in labour-intensive services like childcare, as well as the national past- time of eating out.

Still, the more optimistic global outlook and the continued tightness in the labour market here means workers in Singapore can look forward to fatter pay cheques and brighter job prospects next year.

Human resource consultants are predicting a 4 per cent salary surge, with the more bullish tipping close to 5 per cent, according to recent wage surveys. Even if inflation hits the high end of the official forecast at 3 per cent, that means a 1 per cent to 2 per cent rise in real wages next year.

CIMB's Mr Song said: "If our growth is sustained by external demand, our workers will have a higher chance of stronger wage growth, as there will be more business opportunities."

The unemployment rate is tipped to stay low, at around 2 per cent, said UOB's Mr Tan, adding: "Better confidence among corporates and investors and better business volume will translate into better job opportunities for workers."

So here's to a sweet year of export-led growth in 2014.

alfoo@sph.com.sg


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