Tourism no longer a stalwart for Singapore's economy in 2013

Transport engineering and construction took its place.

According to OCBC, similar to 2012’s forecast, the Ministry of Trade and Industry (MTI) has placed Singapore’s 2013 growth in the 1-3% range (FY2012 growth expected at 1.5%), citing persisting weaknesses in the global economy.

Here's more from OCBC:

Meanwhile, the International Monetary Fund (IMF) has cut its growth outlook for most economies further in its most recent World Economic Outlook. It now forecasts that advanced economies such as the United States and developed Eurozone countries (e.g. Germany, France) will expand by just 1.5% in 2013, compared to its earlier projection of 1.8% growth. The IMF also lowered its overall growth estimate for 2013 for emerging-market and developing economies to 5.6%, from 5.8% previously.  

Given that the macro-economic uncertainty has not dissipated and that the global economy is expected to maintain its sluggish pace of recovery, there seems to be little cheer in store for the coming year.

Tourism loses its appeal
In its outlook, the MTI has highlighted transport engineering and the construction sector as potential support pillars for the economy in 2013. Surprisingly, tourism – which was included in the previous year’s outlook – has been omitted from mention.

Although international arrivals and tourism receipts have grown YoY (according to the latest available 1H2012 figures from the Singapore Tourism Board), we suspect concerns over a possible slowdown in the coming months could have weighed on the overall projections.

For instance, 2Q2012 saw a 5.2% QoQ decline in overall tourism receipts to S$5.5b, partly due to a 19.7% QoQ (-7% YoY) decline in sightseeing and entertainment (including gaming) receipts to S$1.19b.

In fact, other than expenditure on items such as airfares, transportation, medical and education, all the main tourism components (i.e. shopping, accommodation, and F&B) also saw QoQ declines in expenditure.

We believe that this decline in tourism expenditure can be attributed in part to the decreasing appeal of Singapore’s two Integrated Resorts (IRs), which have seen revenue taper off since the initial euphoria when they opened, as the global situation remains lethargic.

For instance, Genting Singapore saw 3Q12 revenue fall 34% YoY, with the majority of the slide due to a reduction in gaming revenue. Therefore, we reverse our previous view that the IRs would prove to be supportive and acknowledge that further, significant drop-offs are possible if the economic downturn worsens and becomes detrimental to travel sentiment.

But employment remains tight
The employment situation in Singapore remains tight with unemployment currently at 1.9% (as at Sep 2012). This is a continued improvement from the recent high of 3% in 2009. The tight labour market has pushed up wages in Singapore (even after factoring in inflation).

Historically, average monthly earnings tend to spike in the first and last quarters of the year – due to the pay-out of year-end/annual bonuses – and taper off slightly in the middle two quarters. Fortunately, even with the lukewarm macro-economic environment, there has not been a wage decline similar to that seen during the 2001/02 dot-com bust or the 2009 financial crisis. We are optimistic that the stability in wages will translate into greater domestic consumption.