Singapore’s Ministry of Trade and Industry released advance estimates for the city state Q1 economic performance, and it isn’t pretty. Q/Q clock in a 1.4 shrinkage, versus estimate of a positive 1.7% growth. On a Y/Y basis, Singapore’s economy contracted by 0.6%. The largest hit sector was manufacturing, which declined by 1.3% Q/Q compared to previous quarter’s +3.1% growth. This is not surprising considering that manufacturing exports have fallen significantly over the last 2 quarters with no respite in sight. This is a great concern for the net exporting country as the global economy appears to be picking towards the tail end of 2012, yet this growth is not felt in the export figures. Similarly, China has just published huge import gains, even though the official figures are disputable, Singapore appears to be not a benefactor of the said gains in imports.
The lower GDP also resulted in the Monetary Authority of Singapore (MAS), Singapore’s Central Bank to lower its inflation forecast for 2013. Core inflation expectation has fallen from 2-3% to 1.5-2.5%, while All-Items CPI is down from 3.5-4.5% to 3-4%. Growth curve of Housing prices have also flattened, with the Certificate of Entitlement (COE) for private vehicles falling off significantly from recent highs. The falling prices are a reflection of a weakening demand/economy and a combination of Government cooling measures.
A lower inflation outlook is certainly good, as it allows MAS scope to ease. However, in the policy statement released earlier today, the Central Bank maintained SGD NEER policy with zero change to current modest and gradual appreciation path of SGD undisclosed trading band. Apparently MAS does not think current threat of a technical recession is needed to weaken SGD in order to push export sales and revitalize current anemic growth.
SGD weakens predictably, not due to MAS maintenance policy but rather due to the surprisingly downbeat GDP. However, overall from a short-term perspective, the trend is still down in favor of SGD over the Greenback. The rally on the dismal GDP failed to test the consolidation range of 9th-10th April and Price has also retreated back and closed below the ceiling of 11th April, which underlines the strong bearish overtone of USD/SGD currently. We are still trading above the recently formed downward trendline, which may still provide short-term support especially if price tests it within the next few hours just when the trendline intersects with the bottom of current consolidation range. A break of 1.237 will help to open up 1.236 and an acceleration towards the recent swing low may occur. However, a full return of bear trend may require a confirmed break of the lower consolidation range found between 1.236 -1.237
No change on Daily Chart, as price continues to trade within Feb’s range. 1.235 is the level to beat for bears to establish themselves on a longer-term trend, while a failure to break the level will result in continued bullish pressure from Jan rally. However, a push above 1.245 may be preferred for bulls to invalidate the breakout from current rising Channel.
Fundamentally, people will be wondering why MAS choose to remain on the sidelines while Singapore’s economy looks to be at its weakest since 2007. 1 reasons is that MAS remain upbeat and bullish about 2013 prospects, which itself said was “modest”. 2nd reason, is that a weakening of the SGD NEER may do little to improve SGD’s economy. Singapore’s exports are not performing, however we do not hear complains from exporters about rising SGD affecting headline. Part of the reason is that all manufacturing firms within Singapore have to purchase raw materials outside, and the strong SGD improves bottomline for those firms significantly. Hence profit margins remain healthy for firms such as these, which also means that the decreasing exports and manufacturing sector is only attributable to global demand – not from a price perspective, but rather a quality perspective. Demand behaviors have shift, and Singapore firms will certainly need to alter their products to meet such demands in the face of global competition. This is something that is out of the hands of MAS, especially when interest rates continue to remain highly depressed. There is very little MAS can do to help in this case and reducing SGD’s strength may only serve to worsen inflation which was a huge concern last year.
This would mean that SGD will face low risk of intervention from MAS in 2013, something that Singapore’s Finance Minister has already said in March. Does that mean SGD will simply rally from here? Of course not. Weakening economy may continue to drive SGD weaker, but USD/SGD trader will also need to watch out for strength of USD which may play a larger role in influencing direction of USD/SGD in 2013.