17 October 2011

Economic Performance and Forecasts

The Ministry of Trade and Industry recently released advance estimates of Singapore's GDP for Q3 2011.

The economy grew 1.3 per cent on a quarter-on-quarter basis, after it had contracted 6.3 per cent in Q2.  As a result, Singapore avoided a technical recession.

The government expects GDP to grow 5 per cent for 2011.  No forecast was provided for Q4 2011.

Two observations may be made.

First, most if not all governments understandably seem rather afraid of recessions, technical or otherwise.  Most recessions are technical until proven otherwise.  But, does anyone ever describe an expansion as a technical expansion?

Second, the government did not provide an economic forecast for Q4 2011 or any period beyond end-2011.

Historical quarterly GDP data matter little to most of us, other than to indicate the direction and the momentum of the economic growth.  Inasmuch as Singapore's economy is open and much more dependent on exports than private consumption expenditure, trends may be interrupted and change so suddenly as to be of little usefulness.

Historical or even current annual GDP data matter even less, inasmuch as they average out the economic performance of four calendar quarters.  What is the importance, for example, of annual GDP growth of 5.0 per cent if the economy contracted quarter-on-quarter in Q3 and Q4 and we are looking at the contraction continuing into Q1?

Although the government provides GDP forecast for the year at the beginning of each year and adjusts the forecast during the year, the practical usefulness of the forecast diminishes as the year progresses and the period covered by the forecast shortens.

What is needed by businesses and consumers are GDP forecasts for the current calendar quarter and for the following 12 months on a rolling basis.  This means providing GDP forecasts now for Q4 2011 and the 12 months ending 30 September 2012.

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