Economic outlook on Singapore
Better times Irvin Seah Executive Director DBS Group Research Feb 2018
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents.
US: Recovery gaining strength US GDP growth % YoY 2.8 2.6
2.6 2.5
2.6
2.4
2.4
2.3
2.2
2.2 2.0 1.8
1.6 1.5
1.6
1.5
1.4 1.2
1.0 2010
2011
2012
2013
2014
2015
2016
2017f
2018f
2
Eurozone: Stronger than usual EZ: Fundamentals are stronger than usual % YoY, % QoQ saar 3.0 2.5 2.0 1.5
1.0 0.5 0.0 CPI inflation, % YoY
-0.5 -1.0
GDP,% QoQ saar
Latest: 4Q17
GDP, % YoY
-1.5
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
3
China: Towards sustainable growth China GDP, YoY% 12 11 10 9
8 4Q17: 6.8% 7 6
4
Technical payback after a strong surge â–ª
GDP growth registered 3.6% in 2017 Chart 1: Technical pullback in 4Q17 % YoY, % QoQ saar 13
Latest: 4Q17
11 9
% QoQ saar
7 5 % YoY 3
3.6%
1
2.1%
-1 -3 Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
5
Blip in manufacturing Pullback in manufacturing YoY%
30
Manufacturing ex Biomedical
25
Overall Manufacturing
20
15 10 5 0 -5
Latest: Jan18
-10 Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
6
Normalisation of the electronics cycle Electronics demand normalising % YoY
% YoY 80
30 Semicon billing, 3mma (LHS)
70
60
25
20
Semicon shipments, 3mma
50
15
40
10
30
5
20
0
10
-5
0 Latest: Jan/Feb18
-10 Jan-16
Jul-16
Jan-17
Jul-17
-10 Jan-18
7
Watch China … China is the key driver and key risk %-pt contribution 12
63% of NODX growth driven by China in 2017
10
US
8
EU
China
6 4 2 0 -2
-4 Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
8
Services to pick up the slack Turnaround in the services sector YoY %-pt contribution 5 4
3
Biz services Financial services Tpt & storage Wholesale & retail Others Services growth
2
1 0 Latest: 4Q17
-1 Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
9
Services will become the main growth engine â–Ş
GDP growth to register 3.0% in 2018, from 3.6% in 2017 Services to become key driver of growth % YoY, %-pt contribution
Services Producing Industries Goods Producing Industries
6.0
GDP growth
5.0 2017: 3.6% 2018f: 3.0%
4.0 3.0 2.0 1.0
0.0 Mar-17
Sep-17
Mar-18
Sep-18 10
Labour market has bottomed Services recovery to lift labour market ratio
% YoY 14
Services sector growth (LHS)
12
Job vacancy to unemployed person ratio
1.8
10
1.6 1.4
8 6
1.2
4
1.0
2
0.8
0
0.6
-2 -4
0.4
Latest: 4Q17
-6
0.2 2008
2010
2012
2014
2016
11
Inflation still low â–ª
Inflation to register 1.0 in 2018, up from 0.6% in 2017 Inflation still benign % YoY 2.5
1.5
DBSf
30 yrs historical avg
2.0
Core inflation
1.0 0.5 0.0 -0.5
2017: 0.6% 2018f: 1.0%
CPI inflation
-1.0 -1.5 Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
12
MAS in normalisation mode DBS SGD NEER and policy band 110
Indexed: 1-5 Apr 2013 = 100
108 106 104 102 100 98
Lower limit
96
Mid point
94 92
Upper limit
90
SGD NEER
88 2010
Source: DBS Research
Zero appreciation
2011
2012
2013
2014
2015
2016
2017
13
Budget 2018 Enhancing sustainability
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents.
Committee for Future Economy
Urban development and infrastructure
Connectivity
Committee For Future Economy
Future growth industries and market
Corporate capabilities and innovation
Jobs and skills
Budget 2018 • • •
Overall budget deficit: SGD 0.6bn Primary deficit: SGD 7.34bn Govt expenditure up 8.3%
CIT: Corporate Income Tax S&CC: Services and Conservancy Charges WCS: Wage Credit Scheme
Near term measures (e.g., CIT rebate, WCS, SG Bonus, U-Save, Edusave, S&CC rebate, enhanced housing grant)
ITMs: Industry Transformation Roadmaps PSG: Productivity Solutions Grant EDG: Enterprise Development Grant DTDi: Double Tax Deduction for Internationalisation NRP: National Robotic Programme
TeSA: Tech Skills Accelerator GST: Goods and Services Tax BSD: Buyer Stamp Duty
Companies Transform local companies via innovation, capability development and internationalisation
Smart and sustainable city (Carbon tax, Energy grid 2.0, Smart Nation, Infrastructure Development Fund)
Budget 2018
Medium term restructuring (e.g., ITMs, PSG, EDG, DTDi, NRP, tax deductions for R&D and IP, TeSA)
Singaporeans Promote inclusive growth, deepen skills
Fiscal rebalancing (GST hike, BSD adjustment, financing infrastructure development by borrowing)
Sources: DBS Research 16
The GST hike •
The GST rate will be raised by 2%-pts to 9% between 2021-2025. It was last adjusted in 2007, from 5% to 7%.
GST, VAT rates for some regional countries UK France Germany China New Zealand Philippines Korea Indonesia Australia Japan Singapore Thailand Malaysia
•
20% 20% 19% 17% 15% 12% 10% 10% 10% 8% 7% 7% 6%
Govt Operating Revenue, FY2016 Total operating revenue Tax Tax: Income: Corporate Tax: Income: Personal Tax: Income: Withholding Tax: Contributions By Statutory Boards Tax: Assets Taxes Tax: Customs & Excise Duties Tax: Goods and Services Tax: Motor Vehicles Tax: Betting Taxes Tax: Stamp Duty Tax: Others Fees & Charges Fees & Charges: Vehicle Quota Premiums Fees & Charges: Others Other Receipts
SGD mn 67,969.40 57,803.60 13,396.70 10,190.60 1,456.10 779.60 4,380.70 2,843.20 10,841.30 2,111.70 2,693.00 3,091.80 6,018.90 9,439.00 6,271.90 3,166.70 727.00
% share 100.0 85.0 19.7 15.0 2.1 1.1 6.4 4.2 16.0 3.1 4.0 4.5 8.9 13.9 9.2 4.7 1.1
Every one percentage point hike in the GST will add about SGD 1.6-1.8bn to the fiscal position, about 0.7% of GDP.
Sources: DBS Research 17
A rapidly aging population SG: An aging population million pax 7.0
Zero growth from here on Total population
6.0 5.0
4.0
Total population ex immigration
3.0 2.0 1.0 0.0
Sources: UN, DBS 18
Rising median age SG: Median age will continue to rise yrs old 60
50 40
37.3
40.0
42.5
44.9
47.0
51.7
53.0
48.8
50.3
2035
2040
2045
2050
30 20 10 0
2010
2015
2020
2025
2030
Sources: UN, DBS 19
A shrinking workforce ‌ SG: Workforce will shrink from 2025 onwards % chg
million pax
25.0
4.5 Labour force
20.0
4.0
3.5
15.0
3.0 2.5
10.0
2.0 5.0
Labour force growth rate
1.5
1.0 0.0 0.5 -5.0
0.0
Sources: UN, DBS 20
Rising financial burden SG: Old age dependency ratio will keep rising Ratio 70
60
Ratio of population aged 65+ per 100 person
54.8
57.4
50.3
50
44.1 37.7
40
30.1 30
20
23.0 17.6
10 0 2015
2020
2025
2030
2035
2040
2045
2050
Sources: UN, DBS 21
Rising social expenditure Rising social expenditure SGD mn 2.0
Social expenditure
1.8
4 per. Mov. Avg. (Social expenditure)
1.6 1.4 1.2 1.0 0.8
0.6 0.4 0.2 1999
Latest: 3Q17
2002
2005
2008
2011
2014
2017
Sources: Department of Statistics, Singapore 22
Fiscal sustainability is key! Primary and basic deficits deepening SGD bn
Special trans fers ex top-up to endownment & trust funds Primary surplus/deficit
10
Basic surplus/deficit
5
0
-5
-10 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Sources: DBS Research 23
Primary deficit deepened further in YA18 Singapore's overall fiscal position
Operating revenue Less: Total expenditure Operating expenditure Developmental expenditure Primary surplus/deficit Primary balance as % of GDP Less: Special transfers Add: NIRC Overall surplus/deficit Overall balance as % of GDP
Revised FY2017 SGD bn 75.15
Estimated Chg over FY2018 FY 2017 SGD bn % change 72.68 -3.3
73.92 56.10
80.02 57.67
8.3 2.8
17.82
22.35
25.4
1.24
-7.34
0.29
-1.66
6.23
9.11
46.2
14.61 9.6 2.1
15.85 -0.6 -0.1
8.5
Primary Deficit: SGD7.34bn
Special Transfers: +46.2% Overall Deficit: SGD0.6bn
Sources: DBS Research 24
Contribution from NIRC has its limitation SG: Limited upside to NIRC contributions SGD bn
16
14 12 Contributions from NIRC
10
Inclusion of Temasek into NIRC framworks
8 6 4 2 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Sources: DBS Research 25
Key points • Resources is limited, hence there is a need to keep a tight rein on spending • Reserves is about inter-generation transfers. The more we spend today, the less we have for tomorrow • Prudent fiscal planning is key! What goes beyond hiking taxes or cutting subsidies? • Growing the pie • Cost management • Better return from investment of the reserves
Sources: DBS Research 26
Thank you
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents.
GDP & inflation forecasts GDP growth, % YoY
CPI inflation, % YoY, ave
2016
2017e
2018f
2019f
2016
2017e
2018f
2019f
China Hong Kong India* Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam
6.7 2.0 8.0 5.0 4.2 6.9 2.0 2.8 1.4 3.2 6.2
6.9 3.7 7.1 5.1 5.9 6.7 3.6 3.1 2.9 3.9 6.8
6.4 2.5 6.6 5.3 5.0 6.7 3.0 2.9 2.8 4.0 6.4
6.2 2.5 7.2 5.4 5.0 6.7 2.7 2.9 2.4 4.0 6.6
2.0 2.4 4.9 3.5 2.1 1.8 -0.5 1.0 1.4 0.2 2.7
1.6 1.7 4.5 3.8 3.8 3.2 0.6 1.9 0.6 0.7 3.5
2.1 2.0 3.7 4.0 3.5 3.6 1.0 1.8 1.0 1.5 3.6
2.2 2.5 4.6 4.5 3.0 3.8 1.8 1.8 1.0 1.5 3.8
Eurozone Japan United States**
1.8 0.9 1.5
2.5 1.6 2.3
2.2 1.1 2.6
2.2 0.9 2.5
0.2 -0.1 1.3
1.5 0.5 1.6
1.3 0.6 1.8
1.4 1.0 1.8
* refers to year ending March ** eop for CPI inflation
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Interest rate and FX forecasts Policy interest rates, eop 4Q18 1Q19
1Q18
2Q18
3Q18
China* India Indonesia Malaysia Philippines Singapore** South Korea Taiwan Thailand Vietnam***
4.35 6.00 4.25 3.25 3.25 1.40 1.50 1.38 1.50 6.25
4.35 6.00 4.25 3.25 3.50 1.65 1.75 1.38 1.50 6.25
4.35 6.00 4.25 3.50 3.75 1.90 1.75 1.38 1.50 6.25
4.35 6.00 4.50 3.50 4.00 2.15 2.00 1.50 1.50 6.25
Eurozone Japan United States
0.00 -0.10 1.75
0.00 -0.10 2.00
0.00 -0.10 2.00
0.00 -0.10 2.25
2Q19
3Q19
4Q19
4.35 6.25 4.75 3.50 4.25 2.15 2.00 1.50 1.75 6.50
4.35 6.25 5.00 3.50 4.50 2.40 2.25 1.63 2.00 6.50
4.35 6.50 5.00 3.50 4.50 2.40 2.25 1.63 2.25 6.75
4.35 6.50 5.00 3.50 4.50 2.65 2.25 1.75 2.50 6.75
0.00 -0.10 2.25
0.00 -0.10 2.50
0.00 -0.10 2.50
0.00 -0.10 2.75
* 1-yr lending rate; ** 3M SOR ; *** prime rate
Exchange rates, eop China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Thailand Vietnam Australia Eurozone Japan United Kingdom
Q1 18
Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Q4 19
6.39 7.82 64.7 13,596 3.95 52.6 1.32 1,082 31.8 22,745
6.49 7.83 65.9 13,747 4.08 53.3 1.35 1,121 32.8 22,832
6.60 7.83 67.0 13900 4.20 54.0 1.38 1160 33.9 22920
6.56 7.82 67.2 13,960 4.18 54.4 1.37 1,148 33.6 22,970
6.52 7.82 67.4 14,019 4.16 54.8 1.37 1,136 33.3 23,020
6.48 7.81 67.6 14,079 4.14 55.2 1.36 1,124 33.1 23,069
6.44 7.81 67.8 14,140 4.12 55.6 1.36 1,112 32.8 23,120
6.40 7.80 68.0 14200 4.10 56.0 1.35 1100 32.5 23170
0.78 1.23 108 1.39
0.76 1.19 112 1.37
0.74 1.16 116 1.35
0.75 1.17 115 1.37
0.76 1.19 114 1.38
0.76 1.20 112 1.40
0.77 1.22 111 1.41
0.78 1.23 110 1.43
Australia, Eurozone and United Kingdom are direct quotes
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