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Global and Singapore economic outlook, 2014 A pinch better …. Irvin Seah Senior Vice President DBS Currency & Economic Research January 2014 . Data sources: Data for all charts and tables are US-EIA, CEIC and Bloomberg. Estimates are by DBS Group Research. Global outlook.

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global and singapore economic outlook 2014 a pinch better

Global and Singapore economic outlook, 2014A pinch better

Irvin Seah

Senior Vice President

DBS Currency & Economic Research

January 2014

Data sources: Data for all charts and tables are US-EIA, CEIC and Bloomberg. Estimates are by DBS Group Research.

2013 markets rewarded economies for simply avoiding disaster
2013: markets rewarded economies forsimply avoiding disaster
  • US: 1.6% growth, 28% return
  • EZ: -0.5% growth, 12% return
  • JP: 1.8% growth, 45% return
  • Asia: 6.1% growth, 5% return
2014 markets will demand genuine growth the only place we see that is in asia
2014: markets will demand genuine growth,the only place we see that is in Asia
  • Conclude: Asia will outperform in 2014

Asia growth = weighted average of GDP growth of China, Hong Kong, Taiwan, Korea, Singapore, Indonesia, Malaysia, Indonesia, Thailand, Philippines

2014 risks housing warrants special mention
2014 risks: housing warrantsspecial mention
  • QE3: Fed is buying $45bn worth of houses every month
  • That’s 5x the value of all new homes sold every month
  • What happens when the Fed stops buying?
    • Mortgage applications drop
    • Sales/prices drop
    • Construction drops
  • It’s not ‘speculation’. It’s what the textbooks predict
  • If housing drops, tapering stops!
would markets like a fed u turn
Would markets like a Fed U-turn?
  • No!
  • Fed is stuck between a rock and a hard place.
  • Can’t live with QE, can’t live without it
  • A Fed U-turn is the biggest market risk for 2014
  • Markets would dub it QE4
risks 2014 asia
Risks 2014: Asia
  • China: structural change is tough
    • Long-run: restructuring is harder than it seems
      • China is 30x bigger today than it was in 1978
    • Short-run: consumption can’t take over for investment
      • And the quick switch mechanism is disappearing
  • Fed tapering? Probably not a risk anymore
    • The idea that Asia saw a lot of inflows from QE is wrong in the first place
most of asia s inflows have been long run flows
Most of Asia’s inflows have been long-run flows
  • Capital has come to Asia for 2 reasons: long-run and short-run
  • Most of the capital inflow has been long-run inflow
  • Since 2001 dotcom crash:
    • US$2.4 trn gross inflow to Asia-10
    • US$ 800bn gross outflow ($500bn in 2008; $300bn since Sept11)
    • Net inflow of $1.6 trn
  • Three steps forward, one step back
  • For every dollar of inflow, 66 cents has stayed for the long haul
  • Pretty good signal-to-noise ratio
mfg external environment improving
Mfg: External environment improving

Indicators are showing gradual improvement

slightly better in 2014
Slightly better in 2014
  • GDP growth for 2013 is expected to register 4.0%
higher inflation in 2014
Higher inflation in 2014
  • Inflation to register 3.0% in 2013
residential
Residential
  • Household debt and mortgage debt as a percentage of GDP has risen to 77% and 45% respectively
income growth kept pace with credit growth
Income growth kept pace with credit growth

Income growth in Singapore had largely kept apace with credit expansion with mortgage loan growth averaging 6% since 2000 vs 5% annual income expansion

looking ahead
Looking ahead….
  • We reckon there could be a surplus of 27,000-42,000 homes
  • This would push vacancies up from the present 5.6% to 8-9% by 2017
  • Historically, rental rates and yields weaken when vacancies rises above 7%
tipping point in demand squeeze
….tipping point in demand squeeze
  • Population per housing stock reached a high of 4.4 in 2012 from 3.76 in 2004. This ratio could retrace back to 3.7 by 2017
  • Historically, property prices closely mirrors this trend
residential overview
Residential overview
  • No boom and bust asset bubble in the works
  • Oversupply and cooling measures such as the TDSR will curb demand and result in private home price inflexion
  • Private home vacancies could rise to 8-9% over the next 3 years
  • Expect up to a 30% decline in primary home transactions this year
  • Private homes prices to retrace by 5% a year over the next 3 years
summary 2014
Summary: 2014
  • Global outlook is improving and Asia will continue to outperform
  • Risks:
    • US: housing is the big one; Fed U-turn possible
    • EU17: unemployment and interest rates go higher, someone wants out of the euro
    • Asia: China’s restructuring proves harder than thought
  • Singapore will benefit from stronger Asia growth
  • GDP growth likely to register 4.0% in 2014… back to medium term potential growth rate
  • Inflation will be higher, at 3.0% in 2014
  • Overall, 2014 will be a pinch better….
  • ……… Happy New Year!
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