A Look at the Week’s Global Economic Events

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We take a look at two global economic updates or interesting key developments that happened recently which investors can take note of. First up, we’ll peruse through Singapore’s GDP growth figures and the performance of various industries for 2013. Next, we’ll zoom in to the continued rising tensions over Thailand’s political rivalry and how it will affect its economy.

Singapore economy grows in line with the ministry’s growth forecast

According to advance estimates from the Ministry of Trade and Industry (MTI), Singapore’s economy chalked up a growth rate of 4.4% in the 4th quarter of 2013, as compared to 5.9% in the preceding year.

Nevertheless, the economy expanded by 3.7% this year, better than initially expected. The GDP growth figure was in line with the government’s earlier revised growth forecast of between 3.5 and 4%.

The manufacturing sector’s growth eased to 3.5% in Q4 2013, lower than the 5.3% growth in the previous quarter. This was attributed to a contraction in biomedical manufacturing output and slower pace of growth in transport engineering output, says MTI. An example of a biomedical company is Biosensors International Group (SGX: B20), which develops medical devices meant for the cardiology market.

The construction sector advanced 4.7% on a year-on-year basis, down from the growth of 5.8% in  the prior quarter, primarily due to moderation in the growth of private sector construction activities. The recent property measures which have started to take shape are causing a slowdown in the residential property sales market which affects the construction sector directly. Lian Beng (SGX: L03) is one of the bigger construction players with a strong local presence.

The services producing industries edged up 5.5%, down from 6.5% growth in the previous quarter amid slower expansions in wholesale and retail trade, and finance and insurance sectors.

In his New Year message on 31st Dec 2013, Prime Minister Mr. Lee Hsien Loong said the Gross Domestic Product (GDP) forecast for next year remains on track to come in at between 2 and 4%. He added that this will likely lead to better job opportunities as well as higher median salaries and pay for the lower-income group too.

Observers also remain bullish on Singapore’s prospects in 2014, citing a strong external economic environment. Associate Professor Tan Khee Giap says, “The external environment is really robust now. So we have to make a really difficult decision whether we want to grow slow or we want to grow when the external environment is favourable.”

Selena Ling, head of treasury research and strategy at OCBC Bank, thinks that Singapore’s economy could grow between 3 and 4 % in 2014, higher than Prime Minister Lee’s base-case estimate.

The more benign macro-economic backdrop, namely the pick-up in the US economy, eurozone recovery and stabilisation in China, should bode well for the externally-oriented sectors. However, the domestic challenges of economic restructuring, tight labour market and elevated costs will remain key challenges for Singapore companies in the year ahead,” she said in an interview with Channel NewsAsia.

Meanwhile, Prime Minister Lee reiterated that the government has set a new direction for Singapore domestically – to have a more open and mobile society, to strengthen social safety nets, and to share the fruits of progress more widely.

Thailand – the divided country

Even though many people know about the on-going riots in Thailand, they are likely to be oblivious to the structures and purpose of the 2 opposing parties – the yellow-shirts, largely better-off urbanites, and the red-shirts, who are mainly rural folks.

The Globe and Mail writes that the yellow shirts distrust the government of Yingluck Shinawatra, the current Prime Minister of Thailand, viewing it as a conduit through which former PM Thaksin Shinawatra (brother of Yingluck) continues to wield power.

The Globe adds that, “They have been accusing the country’s rural population of being too uneducated, and too prone to have its votes bought, to elect a proper government.

In contrast, the more rural red-shirts are largely supportive of the government, which they have repeatedly elected.

The Globe goes on, “[Their] stand, they say, is for the salvation of democracy itself, and their ability to be governed by the rulers they choose. They accuse the rival yellow-shirts of attempting to illegitimately seize power because they are unable to win enough votes at the ballet box.”

However, recently there seems to be a major new crisis taking shape. After months of anti-government yellow-shirt protests, the red shirts have started to spring into action too. “We’re afraid this might turn into Egypt, turn into a civil war,” said Sasiprapa Raisanguan, a student activist in Khon Kaen, in an interview with The Globe.

According to a Reuters report last Friday, as the surging protests in Thailand rages on, its finance minister has expressed concern in the same day about a weak currency and damage to the economy  “as supporters and opponents of the government prepare for big rallies this month that risk pushing the divided country to the brink of chaos.

Reuters’ reporters Apornrath Phoonphongphiphat and Martin Petty went on to add in the report: “Planned infrastructure projects worth $65 billion intended to boost an economy blighted by political tension and sagging exports would be postponed until the end of the year, Kittirat Na Ranong [finance minister of Thailand] said, while the baht’s slide against the U.S. dollar could hurt imports and raise energy prices.”

Despite all the political unrest, not everyone is gloomy over how it will all turn out. Thailand’s SET Index fell 5.2% in a single day last Thursday but that did not faze investing firm Aberdeen Asset Management plc. According to Bloomberg Businessweek, “[the] worst start to a year for Thai stocks since at least 1988 spurred [Aberdeen] to buy after valuations fell to the lowest level in 18 months.”

Bloomberg’s data also revealed that the SET Index was then selling at 10.8 times forward earnings, “the cheapest since June 2012.”

It may be considered a good move as historical data have proven that Thai stocks do rebound after past periods of political tension. During the protests in the first half of 2010, the SET lost 11% but then soared 46% over the next 12 months.

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