Singapore, low rate of default or insolvency

After its rebound in Q2 of 2009, the Singapore economy continued to perform strongly in Q3 of 2009, with GDP growth of 14.9% compared to the previous quarter - and 0.8% year-on-year. In the last quarter of 2009, GDP grew 3.5% year-on-year, although this was down 6.8% on the third quarter. This drop was due mainly to a decline in the pharmaceutical manufacturing and the biomedical sectors, whose contribution to output had been high in the two previous quarters. In contrast to manufacturing, construction and services continued to grow. The slowdown in GDP in the last quarter of 2009 is generally not viewed as a backward trend, or as a signal of a return to recession. To most observers, this was an expected correction of the rapid recovery seen in earlier months as the economy rebounded from the weakness of the previous year.

The seasonally adjusted unemployment rate increased only slightly: to 3.4% in September 2009 from 3.3% in June 2009. Consumer confidence continues to rise on the back of resilient employment, and retail sales (seasonally adjusted) increased by 1.2% in November 2009 compared to October. Excluding motor vehicles, retail sales increased by only 0.3%.

For the whole of 2009, the Singapore economy is estimated to have contracted 2.1%. This is in line with official forecast of a contraction of 2% to 2.5%, which was regularly revised downwards from the 8% to 10% contraction projected in the early part of 2009. Despite the recovery in the course of the year, inflation has remained low at 0,2%.

Crédito y Caución experience on B2B payments in Singapore remained favourable, with no notable increase in notifications of non-payment. The rate of corporate insolvencies remained low in 2009 and the Company expects it to continue so in 2010, with no increase in any particular industry.

 Banks have remained resilient throughout the crisis, maintaining high capital and liquidity ratios. Local banks earnings have dipped, but remain above market expectations. This, together with success in raising capital during the crisis, leaves the local banking system well placed to increase its risk appetite if the recovery continues.

Fiscal support for companies will continue

Monetary and fiscal stimuli have aided local business and appear to have helped prevent a prolonged economic downturn. The Singapore government continues to provide business programmes to counter any limitations in the provision of credit facilities, including loan guarantees, credit insurance premium offsets and credit insurance top-up cover. In December 2009, it extended by a year its financial support for companies introduced during the global crisis in a bid to keep the fragile economic recovery afloat.

This extension of credit support through the Special Risk-Sharing Initiative is effective from February 2010 to the end of January 2011. The move will direct up to US-$ 6.0 billion to spur a recovery in commercial lending and ensure that companies in need of financing can access loans.

At the same time, indications are that the Singapore government will take a cautious approach by withdrawing fiscal support for the economy. Under the new financing support, companies - especially smaller ones - will continue to receive financing support under a bridging loan programme, but the maximum loan per company will be reduced. The government will shoulder only 50% of the risk involved in the loans, down from 80%, with private banks and other involved parties sharing the remainder. Interest on the government-supported loans will also rise: from 5.0% to 5.5%.

The government expects the economy to rebound sharply in 2010, with 5% growth, while inflation is estimated to increase 2.8% on the back of the economic upswing. Crédito y Caución believes that Singapore's economic recovery remains on track, but there are some downside risks. While Asia's expected economic growth should have a positive impact on Singapore's economy, some economists are concerned about the second half of the year, when major Western economies may decide to pull back on their stimulus packages. Singapores reliance on foreign demand and global trade leaves it exposed, and so Crédito y Caución will be closely monitoring the effect of any winding down of stimulus packages by its main trade partners.