Abstract
As a country with a heavy dependence on exports for economic growth, Singapore
has been hard hit by
the sharp slowdowns in its main export markets: the
US and Europe. We are currently anticipating
Singapore' s GDP to contract
by 7.2% in 2009, due in large part to a deteriorating external
environment.
Indeed, the double-digit declines in export growth numbers in
recent months serve to reinforce our view
that the island will suffer a
sharp recession this year. Singapore' s current account balance for Q408
shrank
by 26% quarter-on-quarter (q-o-q), due to a sharp fall in exports
of goods and services, and in light of the
poor export growth registered
thus far in 2009, we expect this trend to continue into Q109.
Singapore' s
industrial output slumped by 22.4% y-o-y in February, improving slightly from
the 29.8%
decline registered in the preceding month, according to the
latest figures by the Economic Development
Board. Electronics and
biomedical manufacturing continued to be the worst performing areas, with
output
dropping by 37.3% and 27.9%, respectively. Meanwhile, the transport
engineering segment remained a
bright spot, growing by 18.5% y-o-y in
February. We expect the rate of decline of industrial output to
continue
to moderate in the coming months, but nonetheless caution that production is
likely to remain
very subdued over the coming months.
The rapid
contraction of Singapore' s container traffic is also a worrying development in
light of the city' s
importance as a regional trading centre. As the
region' s shipping hub and significant re-exporter of goods
made elsewhere
in Asia, Singapore' s trade activity can be seen as a proxy for trade across
South-east Asia,
and the latest figures compound our concerns that slowing
Asian trade will weigh on the region' s growth
prospects.
Prime
Minister Lee Hsien Loong has assured citizens that the government will step up
efforts to combat
the recession, and has announced that more measures to
boost growth will be announced. New measures
will focus on limiting rental
and wage bills and possibly implementing more financing support for
enterprises. Several off-budget initiatives have already been announced in the
last few months as the
government reacted quickly to the economic crisis.
These have included a government-backed retraining
scheme aimed at helping
companies and employees upgrade their skills, thereby avoiding layoffs.
During the height of the Asian Financial Crisis in 1997-98, 30,000 people lost
their jobs, and layoffs on a
similar scale are looking increasingly likely
in 2009. Some 6,418 employees lost their jobs in the first
three quarters
of 2008 and the number is expected to spike higher in Q408 and 2009 in spite
of the
government' s recently unveiled measures. This will strike a further
blow to domestic demand. However,
with more government stimulus expected,
Singapore' s society should be able to ride out the current
downturn and we
are currently projecting a mild recovery - with growth of 2.3% - in 2010.
The weakening external trade environment will likely prompt the Monetary
Authority of Singapore
(MAS) to depart from its existing neutral bias and
adopt a more aggressive stand to weaken the currency
at its semi-annual
policy meeting in April. We feel that a re-centring of the midpoint of the
policy band to
be the most likely measure utilised by the MAS, as it may
minimise potential political implications with
other countries in the
region.
In the Asia Pacific, we profile 23 companies. These are AEGON,
AIG, Allianz, Aviva, AXA, Cardif,
Fortis, Generali, Groupama, HDI-Gerling,
HSBC Insurance, ING Group, Liberty Mutual,
Manulife, MetLife, Prudential
Financial, Prudential plc, QBE, RSA, Sun Life Financial, The
Hartford,
Principal Financial Group and Zurich Financial Services.
We also look at
various local firms that are active in the region: some of these companies
rank, in terms
of the premiums that they write, among the largest in the
world.
We estimate that, over the course of 2008, total premiums in
Singapore rose 17% to SGD26,254mn, nonlife
premiums rose 13% to
SGD7,023mn, while annual life premiums rose 18% to SGD19,231mn.
Between
now and the end of the forecast period, we expect that annual non-life
premiums will grow by
SGD1,750mn, while annual life premiums should
increase by SGD4,003mn. Growth in non-life
premiums should be driven by
the general growth in nominal GDP plus a rise in non-life penetration to
3.50%. Growth in life premiums should be driven by the change in the overall
population and a rise in life
density to US$3,500.00 per capita.
BMI' s
Insurance Business Environment Rating is 75.2.
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