Singapore - Singapore’s Economy Contracts Less Than Previously Estimated

Feb. 16 (Bloomberg) -- Singapore’s economy shrank less than initially estimated last quarter as a surge in pharmaceutical production supported manufacturing at the year end.

Gross domestic product fell an annualized 2.5 percent in the fourth quarter of 2011 from the previous three months, less than an initial estimate of a 4.9 percent decline, the trade ministry said in a report today. Non-oil domestic exports will probably rise 3 percent to 5 percent in 2012, the trade promotion agency said in a separate statement, reiterating an earlier forecast.

Asian nations from China to India have seen an improvement in manufacturing this year, while Malaysia reported growth that slowed less than economists estimated last quarter, suggesting the region is withstanding the impact of the European debt crisis. The gains may wane as Europe faces its second recession in less than three years, maintaining pressure on Singapore’s central bank to support expansion after it eased its policy stance last quarter.

“It looks like the situation is improving but you cannot deny that the risks emanating from the U.S. or Europe are still there,” said Leslie Tang, an economist in Singapore at OSK-DMG, a venture between Malaysian securities company OSK Holdings Bhd. and Deutsche Bank AG. “There are signs of global inventory restocking which may support manufacturing. It will still be in the doldrums though.”

Currency Falls

The Singapore dollar fell 0.6 percent to S$1.2668 against its U.S. counterpart at 11:30 a.m. local time today. The central bank uses the exchange rate as a policy tool to manage inflation.

Asian stocks fell today, with the regional benchmark index retreating from a six-month high, after a decision on a second bailout for Greece was postponed, rekindling concern that Europe’s crisis will crimp global demand. The MSCI Asia Pacific Index dropped 1 percent as of 12:30 p.m. in Tokyo. Singapore’s benchmark Straits Times Index fell 0.8 percent.

Singapore’s economy grew 4.9 percent in 2011, faster than an earlier estimate of 4.8 percent, the trade ministry said. The government reiterated today its forecast for an expansion of 1 percent to 3 percent this year.

A surge in biomedical manufacturing output countered the contraction in the electronics industry last year, while construction was supported by public-sector building projects, the trade ministry said. Services were aided by growth in the finance, insurance and tourism-related businesses, it said.

Policy Moves

GDP increased 3.6 percent from a year earlier last quarter, after rising a revised 6 percent the previous three months. The expansion matched the January estimate.

Singapore’s near-term indicators aren’t pointing at an “imminent rebound” in the economy, Ow Foong Pheng, permanent secretary at the Ministry of Trade and Industry, told reporters at a press conference today. Singapore’s monetary policy stance remains appropriate, Edward Robinson, an assistant managing director at the Monetary Authority of Singapore, said at the same briefing.

The central bank had tightened monetary policy at each of the three half-yearly reviews before its October decision to slow gains in the currency while continuing with a modest and gradual appreciation. It guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

“The global economic outlook remains subdued,” the trade ministry said. The U.S. recovery will be restrained by public spending cuts and continued weakness in the housing market, while the euro area’s economy “is expected to enter into a recession as fiscal consolidation and bank deleveraging dampen private demand,” it said.

‘Downside Risks’

The current growth forecast for Singapore in 2012 doesn’t factor in “downside risks emanating from abroad,” such as a disorderly sovereign default in the euro area that could precipitate a global financial crisis, and an escalation of geo- political tension in the Middle East that could trigger a global oil price shock, the trade ministry said.

Gross domestic product in the 17-nation euro area fell 0.3 percent from the prior three months, the first drop since the second quarter of 2009, a report showed this week.

Singapore’s manufacturing rose 9.2 percent from a year earlier in the three months ended Dec. 31, after climbing a revised 13.7 percent in the third quarter, the trade ministry said today.

The services industry grew 2.1 percent last quarter from a year earlier, after gaining a revised 3.6 percent in the previous three months. The construction industry expanded 2.9 percent.

“There seems to be some near-term stabilization signs but it should not be taken as a concrete signal of sustained demand,” Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore, said before the report. “As fiscal austerity plans in the euro zone intensify and with Greece still on the edge, we don’t want to call a premature dawn.”

Shamim Adam and Andrea Tan

Bloomberg

With assistance from Sarina Yoo in Seoul. Editors: Stephanie Phang, Rina Chandran

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