Published March 21, 2009

Unemployment to rise: Macquarie Research

It forecasts rate to peak at 6-7%, revises 2009 GDP growth outlook to -6% from -3%

By VICTOR KATHEYAS

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MACQUARIE Research expects Singapore's overall unemployment rate to peak at 6-7 per cent later this year. This is worse than during the electronics bust of 2001, when, on a seasonally adjusted basis, the overall unemployment rate rose to 3.6 per cent.

TAKING A BLOW The severity of the contraction in full-year GDP is due mainly to the sizeable hits to key sectors of the economy - exports, finance and tourism

Macquarie also revised its 2009 gross domestic product (GDP) growth forecast to -6 per cent from -3 per cent, and said that incoming data indicated that the economy had contracted again in the first quarter of this year, with the magnitude 'now estimated to be worse than our prior expectations', at -9.2 per cent on a year-on-year basis, versus -6.5 per cent forecast previously.

The severity of the contraction in full-year GDP - which Macquarie said would be the 'worst ever' - is principally due to the 'synchronised sizeable hits' to key sectors of the economy, which it identified as being exports, finance and tourism.

As a result, most other sectors, such as retail and wholesale trade, business services and transportation, will be affected as well, as they are generally tied to the fate of these key sectors.

In particular, Macquarie said, Singapore's heavy dependence on electronic exports makes it 'particularly vulnerable to the cyclical global headwinds for that industry'.

Given the circumstances, unlike previous downturns, the government 'is likely to be more proactive in limiting the ongoing deterioration in the labour market', said Macquarie.

Apart from several fiscal measures announced by the government 'with broad-based targeting of different pressure points', the Monetary Authority of Singapore (MAS) has also shifted its currency-centred policy stance to a zero per cent appreciation of the Singapore dollar nominal effective exchange rate policy band.

While Macquarie doubts that the MAS will shift its stance to signal depreciation of the policy band at the April meeting, it said that the central bank was 'likely to re-centre the mid-point of the band'.

As such, it expects the Sing dollar-US dollar exchange rate to weaken to 1.6 in the near term before recovering later in the year.