Published July 3, 2009

Recession may end, but recovery still not in sight

Singapore may technically climb out of a recession but stay in a rut, the numbers suggest

By ANNA TEO

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(SINGAPORE) Now that the economy is believed to have touched bottom, data watchers are on the lookout for signs that it is headed up, and not still floundering. So it's no surprise that May's manufacturing uptick has spurred talk that Singapore could soon well be 'technically' out of recession - in or from the second quarter just past, in fact.

The surprise 2 per cent rise in manufacturing output in May - the second straight month of growth following April's revised 0.4 per cent figure - no doubt adds to the sense of budding turnaround here. And if the pace is sustained in June, the payoff should certainly show up in the Q2 manufacturing and overall GDP figures.

But to infer from the May boost an end to recession - imminent or 'already' - is probably a tad hopeful. The qualifying asterisks behind the May output figure, to begin with, are glaringly obvious.

First off, the 2 per cent growth came courtesy of (as usual) the highly volatile pharmaceutical industry, which grew close to 140 per cent in May (and 80 per cent in April). Excluding the biomedical cluster - the only cluster that grew in May - total industrial output shrank about 18 per cent in the month.

And if comparing with the preceding month is a better indicator of recent pace, May's overall output was down from April's, albeit by a small 1.6 per cent in seasonally-adjusted terms.

More telling perhaps, beyond industrial output, the all-important exports still do not convincingly spell recovery, even if, as economists have noted, exports have lately shown better 'improvement' than output.

Sure, non-oil domestic exports (NODX) have continued to improve: April's 19 per cent decline was followed by a 12 per cent decrease in May. And in adjusted month-on-month terms, NODX grew 5.6 per cent in May, following a 1.4 per cent slide in April.

But if NODX seem to have turned around, another key indicator - non-oil retained imports of intermediate goods (NORI) - suggests only that demand in the months ahead remains weak.

While NORI (the retained 'intermediate goods' presumably get consumed in domestic production) is said to be a coincident indicator for NODX, the two series have diverged of late: indeed, NORI fell for a third straight month in May on an adjusted basis, after a small pick-up in February. And apart from Taiwan and South Korea, Singapore's non-oil exports to the top 10 markets continued to fall in May.

Also, with no firm sign as yet of any rebound in the US economy any time soon, forecasts of any sustained export and GDP recovery here - out of the trenches, that is - are probably optimistic or wishful thinking.

In any case, even if Q2 sees a return to positive GDP pace in Singapore - as may well be likely for the quarter-on-quarter numbers, though probably not the year-on-year figures yet - that would mark at best a tenuous rebound, until at least another positive quarter or two is in hand. After all, a 'technical' recession is called only after two straight quarters of economic decline.

And even then, just as output and exports had already been weak last year well before the GDP data pronounced recession after Q3 2008, a technical end to recession would not necessarily spell full recovery in industries and sectors big and small across the economy at large. You may get businesses asking: 'The recession is over - but where's the recovery?'