Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

The FY2021 Budget is unequivocally contractionary, with the fiscal deficit likely to contract from 4.5% of GDP in FY2020 (our estimate) to 3% in FY2021, with the overall fiscal position (including Special Transfers and Net Investment Return Contributions) going from a 13% of GDP deficit in FY2020 to near-balance in FY2021. Although real GDP should rebound to 6% growth in 2021, the glut of supply in the the residential property sector is likely to depress prices as global liquidity conditions tighten this year. We recommend being Underweight Singapore, but with relatively de-leveraged <a href="https://www.smartkarma.com/entities/singapore-airlines-ltd" target="_blank" data-smartkarma-citation="entities:74:1" rel="noopener">SIA (SIA SP)</a> well positioned to benefit disproportionately in its sector. Apart from the 8.8% YoY increase in total government spending, the Budget for FY2021 was solidly contractionary, with the fiscal deficit (operating revenue minus operating &amp; development expenditure) projected to decline from an estimated 6% of GDP (S$29.45 billion) in FY2020 to 5.1% (S$25.7 billion) in FY2021. Given that the actual fiscal deficit in Apr-Dec 2020 was only S$12.39 billion, and government revenue grew 17.3% YoY in Oct-Dec 2020 (even with real GDP still down 2.4% YoY), we estimate that the deficit for FY2020 will eventually be only 4.5% of GDP (as the economy returns to YoY growth in the Jan-Mar 2021 quarter). And the deficit for FY2021 will likely be about 3% of GDP, as the economy grows 6% in 2021, boosting government revenue further. The overall fiscal deficit (including the impact of Special Transfers and Net Investment Returns  Contributions) is officially projected to contract from 13% of GDP in FY2020 to 2.2% of GDP in FY2021, but we estimate that this overall balance will be largely balanced in FY2021. Given the extremely low base from March-December 2020 (except for manufacturing), real GDP should begin growing in the current quarter, and easily achieve 6% growth for all of 2021. Since tourist arrivals were near zero in 2Q 2020, they too will be "growing" YoY, although the pain in all tourism-related sectors will persist through 2021. So the FY2021 Budget focused on vaccination and further strengthening healthcare infrastructure, continued support to the aviation and tourism-related sectors, and incentives for employers to retain Singapore-resident employees. The latter has already borne results, with net employment of residents increasing slightly even in the 2020 recession; with many of the 195,900 foreigners laid off being obliged to leave Singapore (and hence its labour force) the unemployment rate moderated to 3.2% by 4Q 2020. With a leaner work force, 2021 will see a strong productivity-led recovery (good for Singapore's main employers, MNCs and GLCs). The manufacturing rebound from 2020 will likely be sustained through 2021; but after this year's 6% real GDP growth, Singapore will return to its recent trend of 2.5-3% annual growth. With global liquidity conditions likely to turn less favourable, the glut of residential property is likely to exert some downward pressure on residential prices in 2021. We recommend staying Underweight Singapore. <a href="https://www.smartkarma.com/entities/singapore-airlines-ltd" target="_blank" data-smartkarma-citation="entities:74:1" rel="noopener">SIA (SIA SP)</a> is likely to be a winner from the fiscal measures: it has cut its workforce by 20%, will receive subsidies for the rest of its workforce until at least September 2021, and will have a relatively less leveraged balance sheet than its global peers when the carnage ends, and be well-positioned strategically to benefit disproportionately once the global tourism industry begins a genuine recovery.

The FY2021 Budget is unequivocally contractionary, with the fiscal deficit likely to contract from 4.5% of GDP in FY2020 (our estimate) to 3% in FY2021, with the overall fiscal position (including Special Transfers and Net Investment Return Contributions) going from a 13% of GDP deficit in FY2020 to near-balance in FY2021. Although real GDP should rebound to 6% growth in 2021, the glut of supply in the the residential property sector is likely to depress prices as global liquidity conditions tighten this year. We recommend being Underweight Singapore, but with relatively de-leveraged SIA (SIA SP) well positioned to benefit disproportionately in its sector. Apart from the 8.8% YoY increase in total government spending, the Budget for FY2021 was solidly contractionary, with the fiscal deficit (operating revenue minus operating &amp; development expenditure) projected to decline from an estimated 6% of GDP (S$29.45 billion) in FY2020 to 5.1% (S$25.7 billion) in FY2021. Given that the actual fiscal deficit in Apr-Dec 2020 was only S$12.39 billion, and government revenue grew 17.3% YoY in Oct-Dec 2020 (even with real GDP still down 2.4% YoY), we estimate that the deficit for FY2020 will eventually be only 4.5% of GDP (as the economy returns to YoY growth in the Jan-Mar 2021 quarter). And the deficit for FY2021 will likely be about 3% of GDP, as the economy grows 6% in 2021, boosting government revenue further. The overall fiscal deficit (including the impact of Special Transfers and Net Investment Returns  Contributions) is officially projected to contract from 13% of GDP in FY2020 to 2.2% of GDP in FY2021, but we estimate that this overall balance will be largely balanced in FY2021. Given the extremely low base from March-December 2020 (except for manufacturing), real GDP should begin growing in the current quarter, and easily achieve 6% growth for all of 2021. Since tourist arrivals were near zero in 2Q 2020, they too will be "growing" YoY, although the pain in all tourism-related sectors will persist through 2021. So the FY2021 Budget focused on vaccination and further strengthening healthcare infrastructure, continued support to the aviation and tourism-related sectors, and incentives for employers to retain Singapore-resident employees. The latter has already borne results, with net employment of residents increasing slightly even in the 2020 recession; with many of the 195,900 foreigners laid off being obliged to leave Singapore (and hence its labour force) the unemployment rate moderated to 3.2% by 4Q 2020. With a leaner work force, 2021 will see a strong productivity-led recovery (good for Singapore's main employers, MNCs and GLCs). The manufacturing rebound from 2020 will likely be sustained through 2021; but after this year's 6% real GDP growth, Singapore will return to its recent trend of 2.5-3% annual growth. With global liquidity conditions likely to turn less favourable, the glut of residential property is likely to exert some downward pressure on residential prices in 2021. We recommend staying Underweight Singapore. SIA (SIA SP) is likely to be a winner from the fiscal measures: it has cut its workforce by 20%, will receive subsidies for the rest of its workforce until at least September 2021, and will have a relatively less leveraged balance sheet than its global peers when the carnage ends, and be well-positioned strategically to benefit disproportionately once the global tourism industry begins a genuine recovery. 

Singapore Budgets for a Return to Normalcy Outside the Key Travel-Related Sectors

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing did much better in March 2020. Similarly, the 2Q 2020 advance estimate is based on data from April-May 2020, when the Circuit Breaker closed much of the economy down. With the reopening on 1st June 2020, that month's manufacturing AND (non-tourism-facing) Services performance are likely to be robust, and the 2Q 2020 real GDP numbers too will be revised up. As the massive fiscal stimulus (paid out to businesses and households) begins to be spent, Singapore will experience a powerful recovery in 2H 2020, generating 1.5% real GDP growth in 2020.  
Singapore's advance estimate of 2Q 2020 real GDP shows it contracting 12.6% YoY (and an eye-popping 41.2% QoQ at the seasonally-adjusted annualized rate, saar). The similar advance estimate of 1Q 2020 real GDP showed it contracting 2.2% YoY (or -10.6% QoQsaar), but the 1Q 2020 figure has now been revised to -0.3% YoY (or -3.3% QoQsaar) -- a gentle rather than violent start to the recession!
The 2Q figure is similarly based on data for April-May 2020, the height of Singapore's Circuit Breaker lockdown of the economy (which ended on 1st June 2020). Just as the details of March manufacturing and NODX resulted in a substantial upward revision of 1Q 2020 real GDP, so will June's details cause an upward revision of 2Q 2020. We continue to estimate a contraction in real GDP of no more than 10% YoY in 2Q 2020.  
Going forward, the massive fiscal stimulus (13% of full-year GDP) will begin to be spent by households and businesses as the economy reopens in June, and especially 3Q 2020 and beyond. The fiscal stimulus includes Job Support to businesses (with the government paying 25% of all companies' wage bills for the whole of 2020, 50% for food &amp; beverage companies, and 75% for those in aviation and tourism-related sectors), the SERS program for the self-employed, and substantial direct income support. The massive stimulus will more-than-replace the lost GDP from the tourism-facing sectors, ensuring YoY growth in 3Q 2020 and a strong acceleration in 4Q 2020 to about 7% YoY growth. We continue to expect Singapore's real GDP to grow 1.5%  in 2020, aided by the massive fiscal stimulus.

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing did much better in March 2020. Similarly, the 2Q 2020 advance estimate is based on data from April-May 2020, when the Circuit Breaker closed much of the economy down. With the reopening on 1st June 2020, that month's manufacturing AND (non-tourism-facing) Services performance are likely to be robust, and the 2Q 2020 real GDP numbers too will be revised up. As the massive fiscal stimulus (paid out to businesses and households) begins to be spent, Singapore will experience a powerful recovery in 2H 2020, generating 1.5% real GDP growth in 2020.  
Singapore's advance estimate of 2Q 2020 real GDP shows it contracting 12.6% YoY (and an eye-popping 41.2% QoQ at the seasonally-adjusted annualized rate, saar). The similar advance estimate of 1Q 2020 real GDP showed it contracting 2.2% YoY (or -10.6% QoQsaar), but the 1Q 2020 figure has now been revised to -0.3% YoY (or -3.3% QoQsaar) -- a gentle rather than violent start to the recession!
The 2Q figure is similarly based on data for April-May 2020, the height of Singapore's Circuit Breaker lockdown of the economy (which ended on 1st June 2020). Just as the details of March manufacturing and NODX resulted in a substantial upward revision of 1Q 2020 real GDP, so will June's details cause an upward revision of 2Q 2020. We continue to estimate a contraction in real GDP of no more than 10% YoY in 2Q 2020.  
Going forward, the massive fiscal stimulus (13% of full-year GDP) will begin to be spent by households and businesses as the economy reopens in June, and especially 3Q 2020 and beyond. The fiscal stimulus includes Job Support to businesses (with the government paying 25% of all companies' wage bills for the whole of 2020, 50% for food &amp; beverage companies, and 75% for those in aviation and tourism-related sectors), the SERS program for the self-employed, and substantial direct income support. The massive stimulus will more-than-replace the lost GDP from the tourism-facing sectors, ensuring YoY growth in 3Q 2020 and a strong acceleration in 4Q 2020 to about 7% YoY growth. We continue to expect Singapore's real GDP to grow 1.5%  in 2020, aided by the massive fiscal stimulus. 

2Q 2020 Advance Estimate Will Be Revised Up, Just as 1Q Was; Recovery Ahead

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years; the average annual CA surplus over the last 32 years was 16.6% of GDP (cumulatively, 531% of annual GDP). In 2019, Singapore had not only a current account surplus of 17% of GDP, it also was a net recipient of FDI worth 19.5% of GDP -- so 36.5% of GDP needed to be "recycled" via portfolio outflows, mainly by purchases of foreign assets by GIC. We estimate that merely recycling the current account surpluses of the past would give GIC assets of over S$1 trillion, generating substantial investment income annually; these and land sales proceeds aren't included in official estimates of government revenue. But using IMF definitions, the General Government fiscal surplus for FY2017 (the latest year available) was 7.5% of GDP, and the average surpluses for the previous 7 years were of similar size. There is a strong case for rethinking the way Singapore accumulates these gigantic surpluses. 
Singapore is an exceptional success story in terms of economic growth, but less so in terms of income distribution. The GST (being a regressive consumption tax) tends to boost the national savings rate, especially in a country like Singapore, which already has high household savings (via the obligatory CPF contributions aggregating 31.6% of earned income) and very high government savings. Given the extraordinary twin surpluses, Singapore could easily abolish the GST. This would reduce the exceptionally high national savings rate, boost private consumption, reduce income inequality, and lower the extravagantly large current account surplus. 
Since Singapore is also a recipient of massive FDI inflows -- foreign savings that supplement the already-high national savings rate -- there is a strong case for the interest paid on CPF savings to be linked to the annual (and cumulative) investment income being generated by GIC and Temasek. Currently the size of GIC's total assets is an official secret; apart from a very small amount of "net investment income contribution" used in recent years' budgets, most of the investment income of GIC and Temasek is reinvested by them, and the large "current account+FDI" surplus is also invested abroad mainly by GIC. In theory, the ultimate owners of GIC and Temasek are Singapore's citizens, but they earn no dividends from them.
A legitimate question likely to be asked in the next parliament is whether it still makes sense for Singapore to keep running these massive twin surpluses -- which take agency away from private citizens to make their own choices with regard to consumption, and the way in which to deploy their savings. Instead, there is scope to invest more in education (particularly to foster creativity and critical thinking), allow greater consumption and a less skewed income distribution, and perhaps even to tie "foreign-worker levies" to the welfare of foreign workers. What is clear is that more such questions and debates will boost the overall welfare of Singapore during the term of the next parliament, perhaps also altering the nature of Singapore's capital market ambitions, especially as Hong Kong succumbs to autocratic communist-Chinese interventions that fundamentally undermine the key rival Asian financial centre. We are bullish on Singapore.

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years; the average annual CA surplus over the last 32 years was 16.6% of GDP (cumulatively, 531% of annual GDP). In 2019, Singapore had not only a current account surplus of 17% of GDP, it also was a net recipient of FDI worth 19.5% of GDP -- so 36.5% of GDP needed to be "recycled" via portfolio outflows, mainly by purchases of foreign assets by GIC. We estimate that merely recycling the current account surpluses of the past would give GIC assets of over S$1 trillion, generating substantial investment income annually; these and land sales proceeds aren't included in official estimates of government revenue. But using IMF definitions, the General Government fiscal surplus for FY2017 (the latest year available) was 7.5% of GDP, and the average surpluses for the previous 7 years were of similar size. There is a strong case for rethinking the way Singapore accumulates these gigantic surpluses. 
Singapore is an exceptional success story in terms of economic growth, but less so in terms of income distribution. The GST (being a regressive consumption tax) tends to boost the national savings rate, especially in a country like Singapore, which already has high household savings (via the obligatory CPF contributions aggregating 31.6% of earned income) and very high government savings. Given the extraordinary twin surpluses, Singapore could easily abolish the GST. This would reduce the exceptionally high national savings rate, boost private consumption, reduce income inequality, and lower the extravagantly large current account surplus. 
Since Singapore is also a recipient of massive FDI inflows -- foreign savings that supplement the already-high national savings rate -- there is a strong case for the interest paid on CPF savings to be linked to the annual (and cumulative) investment income being generated by GIC and Temasek. Currently the size of GIC's total assets is an official secret; apart from a very small amount of "net investment income contribution" used in recent years' budgets, most of the investment income of GIC and Temasek is reinvested by them, and the large "current account+FDI" surplus is also invested abroad mainly by GIC. In theory, the ultimate owners of GIC and Temasek are Singapore's citizens, but they earn no dividends from them.
A legitimate question likely to be asked in the next parliament is whether it still makes sense for Singapore to keep running these massive twin surpluses -- which take agency away from private citizens to make their own choices with regard to consumption, and the way in which to deploy their savings. Instead, there is scope to invest more in education (particularly to foster creativity and critical thinking), allow greater consumption and a less skewed income distribution, and perhaps even to tie "foreign-worker levies" to the welfare of foreign workers. What is clear is that more such questions and debates will boost the overall welfare of Singapore during the term of the next parliament, perhaps also altering the nature of Singapore's capital market ambitions, especially as Hong Kong succumbs to autocratic communist-Chinese interventions that fundamentally undermine the key rival Asian financial centre. We are bullish on Singapore.     

Singapore's Twin Surpluses: How Much Is Too Much?

While a recession is inevitable in 1H 2020, the massive "Resilience Package" worth 11% of GDP will kick-start a strong economic recovery in 2H 2020, aided by the mild monetary easing. We expect real GDP to grow nearly 6% YoY in 4Q 2020 and 7% in 2021, beginning a modest recovery in 3Q 2020, thereby ensuring a mild 1% contraction in real GDP for all of 2020, among the world's mildest contractions this year.  Singapore's real GDP is estimated to have contracted 2.2% YoY (and -10.6% QoQsaar) in 1Q 2020, as the vital tourism-facing sectors experienced a sudden stop by mid-March 2020. Manufacturing, which was already in recession in 2019, was showing signs of recovery in January-February 2020 (+1.2% YoY), but likely contracted about 4% YoY in March, ensuring a quarterly contraction of 0.5% YoY. The services-producing industries declined 3.1% YoY in 1Q 2020 (and -15.9% QoQ), and construction (heavily dependent on foreign workers, many of whom were stranded overseas by the stoppage in flights) declined 4.3% YoY (-22.9% QoQ).    Singapore has responded to the inevitable recession with a massive fiscal stimulus ("Resilience Package") worth 11% of GDP, including a humongous Job Support scheme (with the government paying 75% of wages for the aviation and tourism sectors for the rest of 2020, 50% for other affected sectors, and 25% for all other workers), cash support to households and businesses and generous property tax rebates. Additionally, a mild monetary stimulus was provided yesterday, with the S$NEER re-centred at its current level (after its 3% nominal effective depreciation this month) and slated for a zero-appreciation path over the next half year. In normal years, Singapore doesn't count the government's massive investment income or the value of land sales as government revenue; so Singapore's (unreported) actual fiscal surpluses are massive (10-15% annually using the same fiscal accounting that Hong Kong uses). Singapore will only nibble at these reserves, using S$17 billion this year (3.3% of GDP). These are the times when Singapore's ultra-conservative fiscal accounting make it stand out globally. Unlike in the past (2003 and earlier), Singapore has shed its conservative fiscal stance very early this time, and its economic recovery in 2H 2020 will be glittering by global standards in 2H 2020 and 2021 (when real GDP should grow about 7%). We would urge investors to Overweight Singapore equities.

While a recession is inevitable in 1H 2020, the massive "Resilience Package" worth 11% of GDP will kick-start a strong economic recovery in 2H 2020, aided by the mild monetary easing. We expect real GDP to grow nearly 6% YoY in 4Q 2020 and 7% in 2021, beginning a modest recovery in 3Q 2020, thereby ensuring a mild 1% contraction in real GDP for all of 2020, among the world's mildest contractions this year.  Singapore's real GDP is estimated to have contracted 2.2% YoY (and -10.6% QoQsaar) in 1Q 2020, as the vital tourism-facing sectors experienced a sudden stop by mid-March 2020. Manufacturing, which was already in recession in 2019, was showing signs of recovery in January-February 2020 (+1.2% YoY), but likely contracted about 4% YoY in March, ensuring a quarterly contraction of 0.5% YoY. The services-producing industries declined 3.1% YoY in 1Q 2020 (and -15.9% QoQ), and construction (heavily dependent on foreign workers, many of whom were stranded overseas by the stoppage in flights) declined 4.3% YoY (-22.9% QoQ).    Singapore has responded to the inevitable recession with a massive fiscal stimulus ("Resilience Package") worth 11% of GDP, including a humongous Job Support scheme (with the government paying 75% of wages for the aviation and tourism sectors for the rest of 2020, 50% for other affected sectors, and 25% for all other workers), cash support to households and businesses and generous property tax rebates. Additionally, a mild monetary stimulus was provided yesterday, with the S$NEER re-centred at its current level (after its 3% nominal effective depreciation this month) and slated for a zero-appreciation path over the next half year. In normal years, Singapore doesn't count the government's massive investment income or the value of land sales as government revenue; so Singapore's (unreported) actual fiscal surpluses are massive (10-15% annually using the same fiscal accounting that Hong Kong uses). Singapore will only nibble at these reserves, using S$17 billion this year (3.3% of GDP). These are the times when Singapore's ultra-conservative fiscal accounting make it stand out globally. Unlike in the past (2003 and earlier), Singapore has shed its conservative fiscal stance very early this time, and its economic recovery in 2H 2020 will be glittering by global standards in 2H 2020 and 2021 (when real GDP should grow about 7%). We would urge investors to Overweight Singapore equities. 

Singapore Responds to Recession with a Massive Fiscal & Mild Monetary Stimulus

Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Advance 3Q GDP estimates disappointed on the downside. On the upside the Monetary Authority of Singapore (MAS) did deliver, reducing, in line with our and market expectations, the rate of appreciation of the Singapore dollar nominal effective exchange rate band. We however remain underweight Singaporean equities.

Advance 3Q GDP estimates disappointed on the downside. On the upside the Monetary Authority of Singapore (MAS) did deliver, reducing, in line with our and market expectations, the rate of appreciation of the Singapore dollar nominal effective exchange rate band. We however remain underweight Singaporean equities.

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2Q 2020 Advance Estimate Will Be Revised Up, Just as 1Q Was; Recovery Ahead

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing...

Prasenjit K. Basu

Singapore's Twin Surpluses: How Much Is Too Much?

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years;...

Prasenjit K. Basu

Singapore Responds to Recession with a Massive Fiscal & Mild Monetary Stimulus

While a recession is inevitable in 1H 2020, the massive "Resilience Package" worth 11% of GDP will kick-start a strong economic recovery in 2H...

Prasenjit K. Basu

Singapore - Growing Headwinds

Advance 3Q GDP estimates disappointed on the downside. On the upside the Monetary Authority of Singapore (MAS) did deliver, reducing, in line with...

Sharmila Whelan

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Market Cap (USDm)

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Singapore Budgets for a Return to Normalcy Outside the Key Travel-Related Sectors

Despite an 8.8% YoY increase in total spending, the fiscal impulse will be contractionary in FY2021. Real GDP will grow 6%, but stay Underweight,...

Prasenjit K. Basu

2Q 2020 Advance Estimate Will Be Revised Up, Just as 1Q Was; Recovery Ahead

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing...

Prasenjit K. Basu

Singapore's Twin Surpluses: How Much Is Too Much?

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years;...

Prasenjit K. Basu

Singapore Responds to Recession with a Massive Fiscal & Mild Monetary Stimulus

While a recession is inevitable in 1H 2020, the massive "Resilience Package" worth 11% of GDP will kick-start a strong economic recovery in 2H...

Prasenjit K. Basu

Singapore - Growing Headwinds

Advance 3Q GDP estimates disappointed on the downside. On the upside the Monetary Authority of Singapore (MAS) did deliver, reducing, in line with...

Sharmila Whelan