Daily Money: 22 Oct 2009
This article is contributed by SG Uncle Trader
The government on “Why the STI is NOT the Singapore economy”
Retail investors who have had enough of sitting on the sidelines, and are now poised to pour what remains of their battered savings into the market in the hope of a quick punt, will do well to take note of the following points made by none other than our very own government.
From the BT yesterday, “Big spending budget to prop recovery next year”:
Finance Minister Tharman Shanmugaratnam yesterday said that even more money will be pumped into the economy through the 2010 government budget - in what some see as a suggestion that the current rebound will not hold up without support.
‘We are spending a lot more next year and the coming years compared to the past. If we take infrastructure alone, we are spending more,’ he told Parliament, adding that spending will also rise in education and healthcare.
Mr Tharman’s remarks came barely a week after Prime Minister Lee Hsien Loong said the government would extend the $4.5 billion Jobs Credit scheme – introduced in January to help companies save costs and jobs – for another six months, after it expires in December.
(Regular readers will have already noted in a old posting on the growing addiction of local companies to Jobs Credit, and the potential spike in unemployment that JC’s sudden removal might cause – hence the hedging response from the government.)
The article continues:
Private-sector economists yesterday said the move to step up budget spending next year – even after putting in place an extraordinary $20.5 billion stimulus package this year – reflects the cautionary stance of the government despite signs of the economy recovering.
‘The government remains very cautious, very unconvinced about the stability of the recovery,’ said Robert Prior-Wandersforde, senior Asian economist at HSBC Holdings.
Added CIMB-GK economist Song Seng Wun: ‘The government is projecting a conservative macroeconomic environment. Its premise is that there is still a question mark over the shape of the recovery even though we’ve seen strong growth in the past two quarters.’
Mr. Song, as one of the few remaining economists actually employed by a broker, is of course hedging himself with the above statement. Here’s a quick review on recent comments made, and perhaps provide a cautionary tale of why economists who front-run for securities should avoid being quoted too often:
On October 16, Song was quoted on Bloomberg as saying:
“Business and consumer confidence is coming back, people are willing to open up their wallets. The underlying trend of improvement is intact.”
On October 13, from ST:
Mr Song Seng Wun, regional economist with CIMB-GK Research, said Singapore was ‘firmly out of recession’ with GDP expanding in the third quarter.
Back to our main article:
Singapore’s economy has bounced back, returning to year-on-year growth in the third quarter after three quarters of annual contractions, but Mr Tharman said the global financial system is still fragile.
‘The underlying problems haven’t been resolved,’ he told Parliament, pointing to fears about the extent of any economic recovery and of banks’ ability to start lending again.
‘So confidence hasn’t returned to normal,’ Mr Tharman said. ‘We and seasoned observers all over the world do not expect the next year or two to be a very pretty one.’
The finance minister did not say how much the bigger budget spending will amount to next year, or how big the fiscal deficit will be.
But the spending is expected to exceed the $20.5 billion stimulus in this year’s budget, which was partly funded by past reserves and aimed at helping companies and saving jobs in the country’s worst recession.
That amount was expected to leave the government with a record $8.9 billion deficit, or about 6 per cent of gross domestic product.
In his Addenda to the President’s Address in May, Mr Tharman said his ministry would strive for a balanced budget in the medium term, even as spending will jump in the face of a more competitive global environment and an ageing population at home.
‘Government expenditures are likely to increase from 15% of GDP to about 17% of GDP over the next 5-10 years,’ he said.
Yesterday, Mr Tharman told Parliament that government revenues would not cover the spendings anticipated in the coming budget, because corporate tax collections are expected to be reduced in a recessionary year.
Why is the government playing Debbie Downer to Mr. Song’s Heroin High?
Here are a few possible reasons:
1. Singapore’s economy is getting worse, not better, despite what you may have read in the popular press about the “Singapore economy getting better because things are getting worse slower” theory
2. Our main customers – the Americans and the Europeans – are both vying for the lead role of “Scrooge” in this year’s Christmas production. The US consumers are NOT spending, expecting lower prices in the future, no matter what the inflationistas may say, and Europe is sliding into full blown depression, but no one cares.
3. China is not going to save Singapore, or the world. There’s a great Ponzi debt elephant hiding amongst the Chinese tulips, all engines of growth are weak, and there’s huge overcapacity in the economy. (Readers who point out that China has recently announced that they are well on track to exceeding 8% GDP growth this year, may want to read a previous posting on “Lies, damned lies, and the Chinese GDP” – where the only statistically correct answer is “Whatever the Communist Party wants it to be”.
But, no doubt, retail investors are already submitting requests for forgotten trading account passwords, and are boning up by reading “buy” advertising flyers issued by brokers whose entire business model is to look for a greater fool to offload overvalued stinkers onto.
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SG Uncle Trader, who spends much of his daily life attempting to divide by zero, unwinds by providing an independent and skeptical view on financial and economic issues that affect Singaporeans, with a special focus on the ongoing Global Financial Crisis.
