Friday, September 9, 2011

Downturn: What it means

THERE is a chance Singapore may slip into a recession.

Compared to the first three months of this year, our economy contracted by 6.5 per cent in the April to June period.

If the European debt crisis and the US economic woes cause the economy to contract again in the July to September period, Singapore will enter into a technical recession (two consecutive quarters of negative growth).

A recent Bank of America Merrill Lynch report noted that there's a 59 per cent chance of Singapore entering a recession.

We look at how five sectors could fare if this happens:


Property prices will drop.

But by how much will depend on the severity of the recession, if past recessions are any guide.

In the last recession between 2008 and 2009, property prices dropped about 25 per cent, said property consultancy SLP International research head Nicholas Mak.

But that wasn't as bad as the 1997-98 Asian financial crisis where property prices fell by 45 per cent, he said.

Mr Mak said that for those looking to buy a place to live in, the recession period could be a good time to monitor and buy on the low.

"But if you've a few properties on your portfolio, now may be a good time to lighten up," he added.

"During the down time, you could be hit by low rentals or even none.

And you also have to worry about negative equity or banks foreclosing on your properties.

"But if all your properties are fully paid up, then you don't have to worry."


When times are bad, look for the glitter.

Historically viewed as a form of protection against inflation and tumultuous economic times, investors pile onto gold because they think the price will rise.

Gold climbed to a record US$1,921.15 (S$2,317) an ounce earlier this week, reported the Business Times.

Gold is in the 11th year of a bull run, and analysts said the gold rush is far from over.

Mr Kelvin Tay, a Singapore-based chief investment strategist at UBS Wealth Management Research, believes that jewellery demand will remain strong, despite high and rising gold prices.

So holding on to your gold jewellery may help and having gold can be a hedge against recession.


If the economy is weak and dips into a recession, Certificates of Entitlement (COE) prices will likely drop, said transport economist Michael Li of the Nanyang Business School.

He explained: "Demand for COEs will drop because people will delay the purchase of their car as they're not secure about their jobs and income.

"Fewer people will switch cars and (they) will tend to hold on to their old cars that are still working."

COE ended mixed at the latest tender yesterday as economic uncertainties dampened the appetite for big, luxury cars.

COE for cars above 1,600cc finished lower for the fourth consecutive tender at $63,002, down from $65,521.

But COE for cars up to 1,600cc finished higher.

It closed at $51,000, up from $49,301 two weeks ago.

Dr Li said global car manufacturers will lower the open market value (OMV) of cars here to clear their inventory, which will translate into lower prices.

OMV is determined by Singapore Customs, which pegs it to the car value declared by the importer.

His advice is to wait for the market to settle down, and for COE and car prices to drop.


During a recession, businesses will be more cautious going forward, so wage growth and job creation will be moderate, said OCBC economist Selena Ling.

She added: "This also depends on the industry.

"For example, the manufacturing sector will be quite challenging because global demand (for goods and services) will be affected."

In such a situation, doing what you can to stay employable is important.

Taking courses to upgrade yourself is one way.


The wild stock market roller- coaster swings are definitely not for the weak-hearted.

Analysts have made significant cuts - particularly for banking, property, and shipping and offshore counters - as the economic outlook grows murkier by the day, reported The Business Times on Tuesday.

CIMB research head Kenneth Ng said that if the recession escalates into a financial crisis, the Straits Times Index (STI) could go down to as low as 2,100 points.

Said Mr Ng: "If there's a recession, stock prices would fall as company earnings drop and sentiments get affected.

"People would also prefer to keep cash too."

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