Singapore: Growth outlook lifted amid third quarter expansion

Updated On: Oct 13, 2009

By Shamim Adam

Oct. 12 (Bloomberg) -- Singapore raised its 2009 economic forecast after gross domestic product expanded for a second consecutive quarter, strengthening a regional recovery that has prompted policy makers to consider ending stimulus measures.

The economy will shrink 2 percent to 2.5 percent this year, less than an earlier forecast for a contraction of 4 percent to 6 percent, the trade ministry said in a statement today. GDP expanded an annualized 14.9 percent last quarter from the previous three months, the second consecutive expansion.

Singapore’s central bank said today it will maintain a zero appreciation stance in its currency policy, after opting for a de-facto devaluation of the Singapore dollar in April to help reverse a collapse in exports. Central banks around the world have begun to indicate a willingness to raise interest rates as inflation returns with economic recovery.

“Asian economies are recovering so we may see a slow withdrawal of fiscal and monetary stimulus because they can’t go cold turkey,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore. “The export outlook is improving but there are still potential speed bumps such as unemployment and we may see a prolonged recovery process.”

Australia last week became the first among the Group of 20 nations to raise borrowing costs since the height of the global financial crisis, and U.S. Federal Reserve Chairman Ben S. Bernanke said the Fed is prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.”

Stocks Rise

Singapore’s benchmark stock index rose 0.6 percent as at 9:55 a.m. The measure has surged 52 percent this year as a rebound in manufacturing helped the nation emerge from its worst recession since independence in 1965.

“A clear but modest recovery is under way globally,” the trade ministry said today. “One-off factors such as restocking activities and fiscal stimulus measures will continue to support growth in the near term.”

Asia is leading the world’s recovery from its economic slump after the region’s policy makers slashed interest rates to unprecedented lows and governments announced more than $950 billion of stimulus.

“Singapore is always the first in the region to provide a reliable GDP report so a strong reading would be a positive sign for other outcomes in the region,” said Matthew Hildebrandt, an economist at JPMorgan Chase & Co. in Singapore. “The worst of global economic turmoil is behind us,” reducing the need to further ease monetary policy, he said.

Exchange Rate

The Singapore dollar fell 0.5 percent to S$1.4001 against the U.S. currency as at 9:55 a.m. The Monetary Authority of Singapore, known as MAS, maintained a neutral stance in its twice-yearly currency policy review today, favoring neither appreciation nor depreciation against its trade-weighted basket of currencies.

The central bank, which uses its exchange rate rather than interest rates to control inflation, said the strength of the economic recovery may ease after an “initial uplift,” and GDP growth in 2010 is expected to be slower than in previous post- recession periods.

Singapore is forecast by economists including JPMorgan’s Hildebrandt to delay any change in its currency policy until April. The government is due to say this week if it will extend a program that pays companies to retain workers.

“Singapore’s economy is extremely volatile” and the boost to growth from companies rebuilding inventory and government stimulus is starting to fade, said Hildebrandt. “Because of this uncertainty, we do not expect the MAS to change its monetary policy stance. The risk to inflation is still low so the MAS has no need to tighten policy.”

Inflation Forecast

The central bank expects inflation to be about zero this year, before accelerating to a range of 1 percent to 2 percent in 2010, it said in a statement today.

Singapore’s $182 billion economy grew 0.8 percent in the third quarter from a year earlier, the first expansion in more than a year. The government has raised its 2009 economic forecast twice this year from an April prediction for a contraction of as much as 9 percent.

“Uncertainties over the pace of the withdrawal of monetary and fiscal stimulus measures pose an additional risk” globally, the trade ministry said. “While these factors may dampen growth in the second half of 2010 and result in an uneven recovery, the likelihood of a return to recessionary conditions is low in the absence of further financial shocks.”

Drugs, Chips

Manufacturing, which accounts for about a quarter of the economy, rose 8.3 percent from a year earlier last quarter, after sliding a revised 1.1 percent in the three months through June.

Improving demand for pharmaceuticals and electronics has prompted companies including Chartered Semiconductor Manufacturing Ltd. to predict sales will increase. Singapore’s exports fell the least in almost a year in August.

The island’s services industry declined 2.4 percent last quarter from a year earlier, after falling 4.8 percent in the previous three months. The construction industry gained 12.4 percent as real-estate developers including Frasers Centrepoint Ltd. built homes, hotels and office towers.

Source: Bloomberg, "Singapore Raises 2009 Economic Forecast Amid Recovery", 11 Oct 2009, http://www.bloomberg.com/apps/news?pid=20601087&sid=aSrlgLE37PtQ

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