Today, the trade ministry announced that the Singapore economy rose an annualized 20.4% in the second quarter in this year compared to the previous quarter. This is great news and the extent of the gain has caught most people, including me by surprise.
Markets were actually not expecting so fast a turnaround, nor to such a degree from Singapore, especially since we were one of the worst hit economy during this session because of the open nature of our economy. The Singapore economy had shrunk 12.7% in the 1st quarter. I had already written off not just the first quarter, but the second as well, instead looking forward to see a recovery start to take place in the third quarter onwards.
Now, this news could very well be a sign that other Asian economies will soon start to report a rebound in their economies as well starting in the second quarter of this year. Because Singapore sits as the hub for many a supply chain, this could also indicate that a turn around is in sight as well for the long suffering US economy. This is because you won’t see activity start to increase higher up the supply chain unless there is improvement at the end consumer level.
I do think that Singapore had other things going for it as well. Though we did not have a massive domestic economy from which we could use stimulus packages to help sustain during bad times, the government has been very forward looking and had diversified the economy into other areas. The development of the IR projects helped to prop up the construction sector in the big way. The massive investment into the pharmaceutical and medical sector is paying off dividends now as according to the trade ministry, it was one of the bright spots in the Singapore economy.
All these means that though Singapore’s economy was buffeted heavily by the financial storm from the US, it did not sink. And on the rebound, having these additional growth areas will supercharge Singapore’s economic recovery. The ride ahead, though not a smooth one, is going o be exciting for the Singapore market. I was very optimistic about Singapore, and this latest data about Singapore’s 2nd quarter GDP helped to reinforce my optimism.
As always, we need to temper our optimism by recognizing the realities of the global economy as well. The US economy is still in bad shape and will take some time to climb out of the hole it has fallen into. Despite this, I remain very optimistic about Asia. Asia will forge ahead, and Singapore is well positioned to benefit from the rise of giants like China and India as Asia moves in to fill the gaps left by US’s decline. I am just thankful that we have a forward looking government that is able to make proper long term strategic plans and stay committed to them.
At risk of sounding like a pro-government supporter, I believe that we are actually very lucky to have the current government in power. A good civil service and government are by no means a given, and it has held back many a country with far more resources and potential than Singapore in the race up the economic ladder. With the strong reserves that Singapore has, and the many long term investments it has pumped into all areas from education to infrastructure, to new potential growth sectors, Singapore will withstand any crisis that comes along. And since we were already making long term investments and preparations even during recessions, when the rebound comes, we will be ready.
By the way, Singapore is my largest single country holding. Part of this is because of home bias, but part of this is also because I believe that Singapore is more nimble and can grow faster than other countries.
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