Monetary Authority of Singapore Annual Report 2012/2013
Anchor of Economy


The G3 Economies Underperformed as Fiscal Withdrawals Intensified

The US economy expanded by 2.2% in 2012, with significant quarter-to quarter volatility due to a combination of government spending cutbacks, natural disasters and rising uncertainty over fiscal policy. Private domestic demand turned out to be relatively resilient, supported by stronger residential investment and more moderate growth in consumption spending, compared to the previous year. However, falling federal and state expenditures subtracted more than one percentage point from overall GDP growth in Q4 2012. At the turn of 2013, a last-minute agreement by Congress helped to avert the fiscal cliff, quelling worries of a recession in H1 2013, although across-the-board spending cuts which were triggered by the budget sequester dampened confidence more recently. Despite this setback, US growth rebounded to 1.8% q-o-q SAAR in Q1 2013 from 0.4% in Q4 2012, as an ongoing labour market recovery and continued lift in house prices supported consumer spending.

The Euro zone lapsed into a mild recession in 2012, with an output contraction of 0.5%. Economic activity fell sharply in the peripheral countries, as fiscal rectitude compounded a decline in private domestic demand. Growth in Germany also slowed as net exports, which bolstered economic performance in the first half of the year, became a drag on the economy in the second half. In H1 2012, fears of a possible Greek exit and the revelation of financial fragilities in Spain led to an increase in risk aversion. The subsequent debt settlement in Greece and banking sector bailout in Spain restored some calm to the markets, albeit at the expense of increased fiscal austerity going forward. Amid lingering concerns about the political situation in Italy and the repercussions of the Cyprus bailout, Euro zone GDP continued to contract, by 1.1% q-o-q SAAR in Q1 2013.

The Japanese economy rebounded from the Great Eastern Earthquake with an expansion of 1.9% in 2012. After the spurt of public reconstruction spending seen in Q1 2012, however, waning government stimulus measures pulled growth down for the rest of the year. Weak overseas demand, the strong yen and rising diplomatic tensions with China also contributed to a slump in exports and industrial production, culminating in a technical recession in Q3. However, since the commitment by the new administration to revive growth late last year, the yen has depreciated against the major currencies. The economy started 2013 on a solid footing, with growth accelerating to 4.1% q-o-q SAAR in Q1 2013, driven by robust consumer spending and higher net exports.