Behind Singapore Production Drop, Oil Aids and Hinders Economy

Singapore’s industrial output fell the most in more than a year last month, damping the outlook for growth in the fourth quarter as the government prepares to release gross domestic product data next week. Yet, the oil-price slump that contributed to declines in petroleum production and rig building may help the economy next year, according to Credit Suisse Group AG.

The November production data show the mixed impact of the decline in oil prices to near five-year lows on Singapore’s manufacturing industry, which makes up about 19 percent of the economy. Here’s what it means for growth and monetary policy:

Oil-Related Industries

Petroleum refining fell 24.1 percent in November from a year earlier due to plant maintenance shutdowns, while marine and offshore engineering declined 3.9 percent on lower contributions from rig building activities, the Singapore Economic Development Board said today. Oil’s decline was probably a contributing factor and will negatively affect oil-related industries, according to Michael Wan, a Singapore-based economist at Credit Suisse.

Stronger Demand

Manufacture of food, beverages and tobacco rose 1.1 percent from a year earlier in November, the fourth increase in a row, according to data compiled by Bloomberg based on previously reported figures. Electronics output gained for the first time in three months.

The “oil-price decline is still net positive to the Singapore economy. It boosts consumer demand through lower petrol prices,” said Wan. “The second-order effect can potentially also be quite powerful. To the extent that it boosts developed economies’ growth, it will benefit an open economy like Singapore.”

Falling oil prices are a positive for Singapore’s competitiveness and good for its consumers, Finance Minister Tharman Shanmugaratnam said in Washington this month. It’s not an “unmitigated blessing” as Singapore, an oil importer, is influenced by the state of the region where some neighbors “are affected by the oil price decline,” he said.


Gross domestic product this quarter may rise 0.7 percent to 0.9 percent from a year earlier because of a high base in the same period last year, when the economy expanded more than 4 percent, and weak quarterly manufacturing performance, Wan said ahead of GDP data due Jan. 2.

Singapore is bracing for slower global growth with the government predicting Nov. 25 that the island’s expansion will ease to about 3 percent this year from 3.9 percent in 2013 and the recovery beyond will be uneven. The economy expanded 3.3 percent in the first three quarters from a year earlier.

Monetary Policy

Singapore’s consumer prices fell for the first time since December 2009 last month, as a decline in oil prices added to falling accommodation and private road transport costs. The slide gives the Monetary Authority of Singapore more room to ease policy and a lot more policy space, according to Mizuho Bank Ltd. economist Vishnu Varathan.

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