BT: Are these really the rolling good times? (23 Jan 2007)

Are these really the rolling good times?

People are dining out, shopping and spending, a property boom is shaping up and the STI is at an all-time high but economists are still waiting for concrete signs of growth

By CONRAD TAN
REPORTER

IT'S almost the best of times in Singapore. We have been witnessing unprecedented wealth creation in the stock market and the property market in the last few months.

But economists warn that the growth has not yet filtered down to all sectors of the economy and that the income gap between the rich and the poor may continue to widen.

'Some parts of the economy are certainly doing better than others,' said CIMB-GK economist Song Seng Wun. 'In the financial services industry, new entrants are asking for higher pay, and are getting it. An entry-level analyst can get up to $1,000 more a month in starting pay this year than last year.'

And after years in the doldrums, some smaller businesses are also travelling well.

'It's been a wonderful year,' said Fiona Bartholomeusz, managing director of ad agency Formul8. 'There's so much buzz in Singapore now with the integrated resorts coming up, property doing well, the stock market doing well and employment up. It's a great time. Last year was our best ever. With everyone buying and wanting more, advertising has benefited as well because clients are increasing their budgets and getting more aggressive in promotion. Things are generally very hot in the market.'

The stock market barometer, the Straits Times Index, is now hovering at levels not seen before, after soaring above 3,000 points at the start of the year.

A broader measure of stock market performance - the total market capitalisation of stocks listed on the Singapore Exchange - ended 2006 at an all-time high of $605 billion, after rising 38 per cent over the year.

This means the stock market is now nearly three times the size of the real economy - last year's gross domestic product (GDP) was an estimated $210 billion. Even at the height of the worldwide dotcom bubble at the end of 1999, the stock market was just $366 billion in against Singapore's 1999 GDP of $145 billion.

Elsewhere, the sizzling property market, especially in the high-end residential segment, has seen the setting of new price benchmarks with one luxury penthouse in the Marina Bay area changing hands for a record $3,400 per square foot. The new prices are far above even the $2,000 psf levels seen around Orchard Road at the peak of the last property boom in 1996.

A senior communications executive at a major property developer who declined to be named said: 'I don't think the developers expected prices to move up so swiftly. We may be moving into territory not seen in the last couple of decades.'

He estimated that prices in the high-end segment of the market grew a 'fantastic' 35-40 per cent in 2006. 'Even the high mid-range has gone up by 5-10 per cent on average.'

But several economists told BT they were still waiting for concrete signs that the explosion in mid to high-end property prices and the stock market boom would translate into more spending by consumers. The 7.9 per cent year-on-year growth in retail sales in November - the most recent data available - was healthy but not spectacular, especially after the weakness in earlier months, they said.

'I'm not that convinced that everyone is feeling richer. If you look at the retail sales, the main reason for the jump is motor car sales but the vast majority of us take public transport,' said DBS economist Lim Su Sian. Excluding car sales, retail sales growth since mid-2006 has been 'moderate', she added. 'The primary reason is that overall, wage growth hasn't been particularly strong.'

United Overseas Bank (UOB) economist Jimmy Koh agreed. 'The retail sales numbers have not indicated a major breakout of optimism yet,' he said.

Another reason is that most people do not actively trade stocks, said CIMB-GK's Mr Song. 'The most important feel-good factor is still the broad market property sentiment. If you have much firmer sentiment, I think that would translate into much stronger spending.'

But the property boom - some say bubble - has been driven largely by an influx of foreign buyers at the top end of the market, said the property executive who declined to be named. 'We've seen more expatriates leaving Hong Kong to come down here, people with petrol money from Russia and the Middle East parking their money here, and guys who've made money in China and India.'

Mr Song said there are also many who invested in the property market at the peak of the last boom in 1996 who are just breaking even at current prices, which may have contributed to the cautiousness in spending.

Still, retailers interviewed by BT said they were pleased with the sales they rang up over the Christmas and New Year weekends. At Taka Jewellery, 'sales have increased and customers are buying bigger pieces from us', said Julia Tan, general manager of marketing and administration. 'More tourists are also buying from us.' OSIM's head of branding and marketing, Alan Tan, said he too was happy with sales.

Dining out more often

And people also seem to be dining out more, said Mr Song. 'If you look at catering sales, which captures spending at restaurants, that's going up. So people are not spending as much at the shops, but they're certainly going out to eat.'

Despite worries of a possible economic slowdown in the US triggered by high interest rates there, the government has forecast economic growth of 4-6 per cent for Singapore this year. The median forecast of 16 economists published by the Monetary Authority of Singapore last month is 5.2 per cent.

But amid the exuberance at soaring share and property prices and large bonus payouts at some firms, there is also a sense of unease in some circles at the widening income gap between the rich and the poor, or even the merely not-so-rich. The disparity in distribution of household income from work has risen in recent years, as measured by the Gini coefficient, which grew from 0.44 in the early 1990s to 0.49 in 2000 to 0.52 in 2005.

'This globalised environment is very cruel. If you're in the right industry, they'll pay through the nose for you; if not, they won't,' said UOB's Mr Koh. 'It's a trend that you see not just in Singapore, but it's a lot more pronounced here because we're a very small economy.'

While the mean household income grew by an average of 1.1 per cent a year between 2000 and 2005 to $5,230 after adjusting for inflation, the median household income grew just 0.5 per cent a year to $3,700. This means that incomes in the top half of the distribution grew at a much faster rate than those in the bottom half.

'There's a sense that corporate profits have gained relative to the wages of workers around the world,' said economist David Cohen at Action Economics. 'Somebody's capturing the gains, and it's usually the highest income bracket.' DBS' Ms Lim said: 'No matter what the anecdotal evidence seems to be, the data shows that the income gap is still growing.'

The government, aware of the disparity, is expected to reveal details in the upcoming Budget of a variety of measures to help narrow the gap, including an offset package to cushion the impact of the impending hike in GST and a permanent Workfare scheme to help low income workers.

For now though, UOB's Mr Koh thinks the mood among investors will continue to improve together with the economy.

Tomorrow: A look at the goods and services tax (GST) and its pros and cons

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