Don’t bring out the Champagne yet. Yes, the worst does seem to be over for now; but NO, it is not time for celebration yet.

At best, this is a situation like a doctor declaring a critically ill patient ‘stable’ but still needed in the intensive care unit. It does not mean that the patient will leap from the bed and ‘boogie’ again. How long the patient will remain bed-ridden and be highly dependent on intensive care remains an agonising mystery. Worse still, nobody can be sure that the patient will not suffer a relapse after a while.

This is the problem we are facing right now as many of our customers do not seem to be able to differentiate ‘stabilising’ from ‘full recovery’. Official statistics are still pointing to an economic contraction, though things are beginning to look ‘less menacing’. But to call this the beginning of the revival is ‘jumping the gun’ and uninformed.

The situation now is at best uncertain and ambiguous. Some economists said over the recent weeks that the world is entering a twilight zone of conflicting signs, with key indicators pointing towards a recovery but economic data continues to be grim and employers continue to trim jobs; and such view is echoed by the Ministry of Trade of Industry (MTI) in Singapore.

It is true that some semblance of confidence has crept back to the real estate market, resulting in heightened home-buying activities in March, April and May 2009. Some bargain hunting has definitely taken place with buyers hoping to own a piece of prime real estate at the posh locations with more affordable price. But the luxury market is still devoid of any actions despite the much taunted opening of Singapore’s first casino in six months’ time.

This month’s review will attempt the million dollar question of ‘is it’ or ‘is it not’ a real market revival.

(A) Overview of the Larger Economy

[A.1] Singapore Finance Minister not Optimistic

First and foremost, the Singapore Finance Minister Tharman Shanmugaratnam had said in late May that it was ‘still too early' to conclude that the world economy is in 'recovery mode'. For one, he did not believe that the ‘green shoots’ in some countries and specific industries will spread across the world economy; nor did he believe they would last.

His message was sombre and cannot be ignored, that is, 'a large part of the world economy is still contracting. Even among the optimists, the consensus is that the recovery, when it materialises, is likely to be weak, given the magnitude of the unresolved problems in the global financial system.

[A.2] IMF Forecasts Slow Recovery for the World

Economists from the International Monetary Fund (IMF) forecast that the Singapore economy will contract by 10% this year and then followed by flat growth next year.

Asian exports and investment spending, including Singapore’s, are likely to stay weak for years as easy credit in the US is all but gone, and demand by the heavily indebted US consumers for high and medium-tech manufactured exports, such as cars, cosmetics, and electronics products is likely to stay subdued for many years.

IMF figures also showed that Europe sank deeper into recession in Q1 2009. Data showed that France, Austria and Romania officially entered recession and Germany recorded its worst quarter on record. Likewise, the 16-nation euro zone shrank by a record 2.5%.

In Japan, car exports plunged almost 70% between September 2008 and March 2009. And exports to China from the rest of emerging Asia declined 80% in the same period. In the meantime, Japanese central bank data hinted that the Japanese economy may be facing a repetition of its 1990s deflationary spiral when falling prices led to weak consumer spending.

[A.3] Employees in Singapore Set to Get Lower Wages in 2009

A recent international ‘salary hikes’ Survey conducted by a human resource consultancy across the Asia-Pacific region in the January-February 2009 showed that 36% of the 89 companies polled in Singapore shared the same thought of freezing pay this year.

The survey also showed that employers in Singapore have trimmed their budgets for 2009 salary increments to a median 3%, down from 4.3% in November 2008.

This makes the pay hikes in Singapore the lowest at a time where salaries across the Asia-Pacific region are set to grow by a median 5%.

[A.4] MTI Believes Worst is Over; but Downside Risks Remain

And finally when some ‘slightly better news’ arrived from the Ministry of Trade and Industry (MTI) i.e. that the Singapore economy has probably bottomed and things have stopped getting worse, the government looks set NOT to increase the stimulus package beyond the original S$20.5 billion. This means that while many who are waiting for things to return to normalcy, there will be more ‘belt tightening’ for corporations as well as individual consumers as a second fiscal aid is unlikely.

MTI had announced that Singapore GDP shrank 10.1% in Q1 year-on-year, the sharpest on-year contraction since the country’s independence.

However, the biggest irony of all was that the Singapore stock market cheered the figure because it was better than the minus 11.5% initially estimated by MTI.

Besides, according to MTI, downside risks are still high because of the uncertainties in US banking, where lending continues to be restricted, and the risks of a second round of financial sector collapses cannot be totally ruled out.

In short, it is MTI’s unequivocal position that for now ‘it is not clear that Singapore has begun to rebound from the bottom’.

[A.5] Business Volume and Bank Loans Dropped in Tandem

Estimates from the Monetary Authority of Singapore (MAS) show a 0.3% slide in the total  Singapore dollar bank loans at $270 billion at end-April. The same official data showed that loans to businesses contracted by $92.3 billion, or some 5.7% over the half-year to end-April.

Loans to businesses fell 1.1% in April to $154 billion, the sixth consecutive monthly decline. Lending to the manufacturing sector dipped 3.1% over the month to $11.5 billion. And rather unexpectedly, loans to the building and construction sector also dipped 0.1% to $50.8 billion.

Only consumer lending was growing with total consumer loans rose 0.8% in April to $116 billion at the end of the month. That included $81 billion worth of housing and bridging loans, which grew 0.6% over the month. However, unpaid personal debts also rose in the midst of the economic gloom. All together, banks wrote off $15 million in credit-card bad debt in April, the most since December 2004.

[A.6] Inflow of Foreign Fund to Asia Stopped

In Hong Kong, foreign funds investing in equities there have started to move out in mid-May 2009. A net US$3.3 million flowed out in mid-May after US$59.4 million had been invested in the first week of

May 2009.

Likewise, foreign cash flowing into funds buying China shares in Singapore dropped by almost half to US$273.3 million at the same time from a weekly average of US$501.4 million in late April and early May period.

Foreign investors have stayed muted over Singapore. They poured only about US$8 million into funds investing in local equities in mid-May. The bulk of trading on the bourse here is still driven by retail investors.

Some analysts are also worried that the sharp rise in valuations in emerging Asian markets might not be supported by a similar recovery in corporate earnings as their main export markets in the United States and Europe remain mired in recession.