Japan economy likely in recession

JAPAN - The composite index of coincident economic indicators for September dropped for the sixth straight month, indicating the national economy has likely entered a recession, according to the Cabinet Office.

The coincident CI, which reflects current economic conditions, stood at 91.2 compared with 100 for the base year of 2005, down 2.3 points from the previous month, the office said in a preliminary report released Tuesday.

In addition to declining exports stemming from a slowdown in overseas economies, some indicators, such as industrial output and shipments of durable goods, dropped due to sluggish domestic auto sales following the end of a government subsidy programme for purchases of environmentally friendly vehicles.

The Cabinet Office revised downward its basic assessment, saying the national economy has moved into a recessionary phase and is likely in the first stages of an economic slowdown.

This was the first such assessment made since May 2011, just after the Great East Japan Earthquake and tsunami.

Concerning future prospects, the Cabinet Office said it will be necessary to keep a close eye on the global economic downturn and exports.

Some market observers suspect the domestic economy entered a recessionary phase after peaking in March.

Risk of US double-dip recession rises: S&P

WASHINGTON: The odds the United States will slip back into recession next year have risen, ratings agency Standard & Poor's said, citing risks from the European debt crisis and budget tightening at year-end.

The US ratings firm raised the chance of the US falling into recession to 25 per cent, up from a 20 per cent chance estimated in February, as the world's largest economy struggles to recover from a severe 2008-2009 slump.

It also pointed to the looming possibility of the government being forced by existing law to severely cut spending and increase taxes on January 1, the so-called fiscal cliff that would crunch the economy.

"Economic activity has downshifted sharply from earlier this year," S&P said in a report on North American credit conditions amid global uncertainty, dated August 20.

"At the same time, possible contagion from the European debt crisis, the potential so-called 'fiscal cliff', and the risk of a hard landing for China's economy have added greater uncertainty to US economic prospects," it said.

In the second quarter, the world's largest economy grew at a 1.5 per cent annual rate, a sharp slowdown from late last year as unemployment remained stuck above 8.0 per cent.

S&P underscored concern about the impact of a recession in the 17-nation eurozone, whose economy contracted 0.2 per cent in the second quarter. S&P forecast a 0.6 per cent contraction this year.

"A double-dip recession in Europe that transmits financial turmoil to the US could push it into recession," the agency said.

However, S&P said its baseline scenario for the US economy -- remained "modest growth," projecting a gross domestic product expansion of about 2.1 per cent for this year.

S&P also said it expected that politicians would agree before year-end to change the current severe budget cut and tax hike mandates to avoid the fiscal cliff fate.

However, it said, "We do not believe the US and European economies will improve substantially in the next year."

British recession deepens as economy shrinks 0.7% in Q2

LONDON : Britain's economy shrank by a worse-than-expected 0.7 per cent in the second quarter, official data showed on Wednesday, as recession tightened its grip.

The economy shrank 0.7 per cent between April and June, the Office for National Statistics said, blaming the downturn on steep falls in the construction and manufacturing sectors.

That was far worse than market expectations for a 0.3-per cent contraction, according to analysts polled by Dow Jones Newswires.

"We all know the country has deep-rooted economic problems and these disappointing figures confirm that," said British finance minister George Osborne in reaction to the data.

He added: "We're dealing with our debts at home and the debt crisis abroad ... but given what's happening in the world we need a relentless focus on the economy."

Britain was already in recession after posting two successive negative quarters since late 2011. The economy shrank 0.4 per cent in the fourth quarter of last year and by 0.3 per cent in the first quarter of 2012.

"This really is a very nasty surprise indeed," said IHS Global Insight economist Howard Archer, in response to Wednesday's news.

"GDP contraction of 0.7 per cent quarter-on-quarter in the second quarter is far deeper than anyone expected and is a very disappointing and worrying performance.

"Plunging construction and manufacturing output weighed down heavily on the economy while service sector activity also contracted marginally."

The downbeat data was published two days before the 2012 Olympic Games opens in London, an event many hope will give a boost to the struggling economy.

"The economy should be able to return to growth in the third quarter, helped by the Olympics," Archer noted.

Italy set to enter recession in 2012, says deputy minister

ROME (AFP) - Deputy Economy Minister Vittorio Grilli said on Sunday Italy was set to enter a recession in 2012, with Gross Domestic Product predicted to shrink by 0.4 to 0.5 per cent.

Italy's growth should level out again by 2013, he added during a press conference following the adoption by the cabinet of a draconian package aimed at pulling the country back from the brink of insolvency.

EU warns of recession in 2012

BRUSSELS: Europe warned on Thursday that its debt crisis was dragging the region towards a new recession, deepening the sense of foreboding as Italy and Greece struggled to put together new governments.

Amid a call by the head of the International Monetary Fund for an end to the political wrangling, it was still unclear who would emerge as the new leaders of Greece and Italy after both countries' premiers threw in the towel.

After doubts grew over Italy's ability to keep servicing its debts, the European Union's new economy tsar said the bloc faced tipping back into recession in 2012 due to a "vicious circle" of government debt, vulnerable banks and collapsed spending.

"Growth has stalled in Europe, and there is a risk of a new recession," Olli Rehn said as the EU released detailed forecasts for the eurozone and broader econonomy for the next two years, with GDP "now projected to stagnate until well into 2012."

Growth across the eurozone in 2012 would collapse to 0.5 percent, said the forecast, a steep drop from its previous prediction of 1.8 percent. The forecast for this year was also revised downwards from 1.6 to 1.5 percent.

The economy in Italy, the eurozone's third largest economy, would virtually stagnate in 2012 with growth of just 0.1 percent, according to the forecast.

Italy's growing crisis has already prompted Prime Minister Silvio Berlusconi to announce his resignation. He will stand down after parliamentary approval this weekend of a package of economic reforms aimed at calming investor fears, which have pushed Italy's borrowing rates to alarming levels of seven percent.

The handover of power has led to fevered backroom negotiations, with former EU commissioner Mario Monti seen as the frontrunner to succeed Berlusconi.

Monti received the backing on Thursday of Berlusconi, with the outgoing premier saying that he would work "in the interests of the country".

The 68-year-old Monti earned a fearless reputation as the European Union's competition commissioner taking on US corporate giants Microsoft and General Electric and is seen as a possible head of a national unity government.

Monti's appointment was not a done deal however after several leading members of Berlusconi's centre-right coalition insisted on early elections.

"Italy is facing a difficult time and particularly arduous choices to overcome the crisis," said President Giorgio Napolitano, who will be forced to call early elections if there is no consensus on a new government.

"Europe is urgently awaiting important signals of a taking on of responsibility by one of its founders. We will be up to the task."

On Wednesday, Italy's 10-year bond yields flew over 7.0-percent to heights that could make it impossible for Rome to keep financing its 1.9-trillion euro ($2.6 trillion) debt.

In a key test after Berlusconi's resignation announcement, Italy paid record rates of over six percent at an auction of treasury bills on Thursday.

Greece is also been in political turmoil since Prime Minister George Papandreou announced on Sunday he was standing down, triggering days of bickering between political leaders over the succession.

There was hope however that a new transitional government could be announced on Thursday whose first task will be to ratify a crucial EU bailout deal.

A meeting between President Carolos Papoulias and top political leaders opened at 0800 GMT with reports indicating that former European Central Bank vice-president Lucas Papademos would be given the reins of government in Greece's worst post-war crisis.

The Athens stock exchange was up 2.19 percent in morning trade in expectation of a deal on the fourth day of secrecy-veiled negotiations between Papandreou and the head of the opposition, conservative leader Antonis Samaras.

Europe's main markets plunged in early trading but staged a slight rally later in the morning. Frankfurt rebounded 1.04 percent and Paris added 0.98 percent, despite rising pressures in the French bond market.

Christine Lagarde, the head of the IMF, said both Greece and Italy urgently needed to sort out their leadership difficulties.

"Political clarity is conducive to more stability ... it is much needed in Greece, it is much needed in Italy," the IMF chief told journalists in Beijing.

Confusion over the future leadership of both countries was "conducive to volatility," added Lagarde, who is on a two-day visit to China.

The turmoil in parts of the eurozone has prompted questions about the single currency's whole future, including in the continent's economic powerhouse Germany.

According to a report in the German business daily Handelsblatt, MPs in Chancellor Angela Merkel's governing conservative party are mulling a move to permit countries to exit the eurozone without leaving the EU.

A motion from a group of lawmakers, which calls for any country's departure to be on a voluntary basis, is set to be discussed at the Christian Democrats' (CDU) party congress next week, Handelsblatt said.

Caught in a lower income trap

MADAM Koh Ting Guat’s bedridden husband needs to be hooked up to an oxygen
machine to help him breathe.

She changes the ventilator tubes once a week, instead of the prescribed every
three days. That way, she reckons, the $5 pack of 50 tubes will last longer.

Such cutting of corners is not out of meanness but a lack of means.

A year ago, they were getting by as a middle-income family. She earns $2,800
a month as a shipping executive and her husband made $1,500 as a salesman.

But life threw them a curveball when he suffered a stroke, leaving him bedridden.

These days, the family makes do on her salary, with little left after paying for
their two sons’ school expenses, her husband’s medical bills, the wages of a Filipino
caregiver, utilities, transport and food.

The family has fallen into that sandwich class of low-middle income Singaporeans
who keep Acting Minister for Community Development, Youth and Sports
Chan Chun Sing awake at night.

In a media interview last week, he said that this group tend to be in jobs that are
vulnerable to being lost in the churn of economic cycles. They also tend to have
little savings to cushion the impact.

He identified them as being in the 11th to 20th percentile in terms of resident
household income, making an average of $2,681 a month. These are headed by a citizen or permanent resident, and with at least one working person.

Another set of figures, measuring individual incomes of Singaporeans, is sobering.

A joint report by the Manpower Ministry and the Department of Statistics
showed that monthly real incomes of Singaporeans at the 20th percentile grew 0.3
per cent over the decade – almost zero per cent a year.

In contrast, those in the middle saw real monthly incomes rise 1.2 per cent a
year over the same period, or 11.3 per cent over the decade.

Who are in this low-middle income group and how can they be helped?

Figures culled from various agencies show them to be mainly made up of large
families with school-going children, with the parents aged between 40 and 50. One
parent may have been recently retrenched, or they may be burdened by
heavy medical bills or in some cases, marital woes have added to their troubles.

Some may benefit from the Workfare Income Supplement Scheme, if they are
aged 35 and above and have gross monthly incomes of $1,700 or less, among other
conditions.

But apart from Ministry of Community Development, Youth and Sports
(MCYS) programmes to help with childcare costs and taking care of elderly parents,
little other help is available as they fall outside social assistance nets.

Government schemes such as Com- Care Transitions and the Work Support
Programme disqualify households with incomes above $1,500.

Those in the 1st to 10th percentile – with average monthly household incomes
of $1,400 – would qualify for benefits such as cash grants and utilities vouchers
under these programmes.

The “at risk” group in the 11th to 20th percentile, Mr Chan pointed out, form a
significant portion of the bottom third of the population. About 377,400 employed
residents aged 15 years and above earn between $2,000 and $2,999, according to labour statistics last year.

And, the minister feels, this group’s meagre savings – not more than a few
thousand dollars usually – mean they are on a dangerous keel in an increasingly uncertain global economy where a recession might be around the corner.

“You think I have savings now? If strike lottery tomorrow, yes,” said Madam
Koh.

She is thinking of taking on a second job to supplement her income. In the
meantime, scrimping and saving is all she can do. She is cutting back even on treatments for her husband.

Acupuncture treatments, for example, have been cut from thrice to twice weekly, saving $100.

“If a downturn really happens, I might have to sell this flat and move in with my
parents in Pasir Ris,” said Madam Koh of their four-room Sengkang flat.

Like many in their bracket, she and herhusband have only secondary education.
Singaporeans in this rung hold jobs such as technicians, security guards and in the service industry.

Top of their wish-lists: financial help from the Government when they hit dire
straits, or utility and transport vouchers, especially if a downturn occurs.

For Mr S. Ahmad, 55, his household is “already in a recession”.

A diabetic, he was a freelance travel agent earning about $1,000 a month until
June last year, when his right foot suddenly became swollen. He has been going for operations and follow-up treatment since. After insurance claims and government subsidies, he still has had to paymore than $10,000 in medical bills.

Now, his 25-year-old son, an optometrist earning about $2,500 monthly, is the
family’s sole breadwinner.

Adding further strain on Mr Ahmad’s finances are a $680 monthly housing loan instalment and another two young children who are still in school.

And as Mr Ahmad did not have the $1,000 advance to pay for a machine to
vacuum the pus from his foot last year, the infection spread upwards to his knee.

More medical treatments, bills and stress followed.

“I just have to borrow money from friends, what can I do?” he said resignedly in an interview in his Pasir Ris flat.

“I’m just living by the day.”

His 53-year-old housewife may resort to making kueh and selling it from home to raise funds, he said.

Another Singaporean trying to make ends meet is Mr Haron Ajit, 51.

He was a logistics supervisor until he suffered a stroke in June. His 21-year-old daughter is now the family’s sole breadwinner,earning about $2,500 from her nursing job. He has two sons – one in Secondary 4 and the other in Primary 1.

Mr Haron said: “We’re financially very tight now because of my condition.”

Apart from help to deal with medical expenses, social workers say some in the
low-middle income group also seek assistance for family problems like divorce, or after they lose their jobs.

Mr Hindran Maniam, a counsellor at Rotary Family Service Centre in Clementi,said: “They ask for counselling for problems like family violence, taking care of elderly parents, or communication issues with children.”

One middle-income wife, for instance,went for counselling at Fei Yue Family
Service Centre in Yew Tee after she discovered her husband had an affair. She was contemplating divorce, but was held back by fear that it would affect the household income.

Retrenchments are not a problem yet but Ms Florence Lim, the director of Covenant
Family Service Centre in Hougang,expects such cases to surface if the global economy drags Singapore down.

Industry veterans say the best way to help the low-middle income group is to raise
the upper limit for ComCare programmes to about $2,000 to $2,500.

This would open up qualifying for more benefits such as medical assistance,rental and utilities vouchers, and monthly cash grants.

Ms Lim, a social worker for three decades,said: “Why not also look at their net income after Central Provident Fund deductions,rather than gross household income,in deciding eligibility?”

This would widen the pool of those eligible,especially with rising living costs.

The Government could give slightly smaller ComCare subsidies to the low-middle income bracket compared to those at the bottom rung, Ms Rachel Lee, head of Fei Yue Family Service Centre and a social worker for 19 years, mooted.

Getting these workers to upgrade their skills so they can get jobs that are less susceptible to being wiped out by economic cycles was another popular suggestion,
but there are problems with that route.

“These people need money from work. Who’s going to feed their families when they go for training for those few months?” said Ms Lim.

She said CDCs do give a few hundred dollars a month to help these individuals during say the quantum should be higher.

Short-term assistance for about threemonths to help them tide over a difficult situation would also work well, said North East District Mayor Teo Ser Luck.

Mr Teo, whose district has been helping residents who do not qualify for Com-Care through its local scheme, said: “You have to be there when they need you.

That’s what this safety net is about – covering the cracks.”

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

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."



Gold

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.



Car

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.



Jobs

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.



Stocks

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."