Singapore - Singapore economic prospects brighter, inflation looms

SINGAPORE - Singapore's exports recovered strongly in February, led by electronics and pharmaceuticals, providing an early sign the picture could brighten for Asia's trade-dependent economies.

But the outlook for inflation in the city-state worsened, with economists now predicting it could hit the top end of the official 2.5 to 3.5 per cent forecast for 2012, according to a survey released by the central bank on Friday.

Asia has been hit by slowing demand from the West and several of the region's central banks have eased policy to support growth as inflation slows despite high oil prices. But sentiment has improved in recent weeks with some strong US economic data and Greece's success in securing a second bailout.

Singapore, Asia's wealthiest nation whose trade is three times the size of its economy, is seen as a bellwether for the region.

The city state's trade data provides "further evidence that the recent improvement in the business confidence surveys across Asia (and the world) is translating into much better hard numbers," Credit Suisse director of Asian economics, Robert Prior-Wandesforde, said in a note to clients.

Non-oil domestic exports surged 30.5 per cent in February from a year earlier, the government said on Friday. Singapore's exports had fallen 2.4 per cent year-on-year in January, partly due to the early Chinese New Year holiday.

Electronics exports rose 23.3 per cent year-on-year in February, reversing a fall of 10.9 per cent in January. Pharmaceuticals exports leapt 44.5 per cent year-on-year last month, more than doubling January's 20.2 per cent.

Combining the data for the first two months of the year - to strip out distortions caused by the Chinese New Year - non-oil domestic exports rose nearly 13 per cent from a year earlier. The Lunar New Year fell in January in 2012 but in February in 2011.

The Monetary Authority of Singapore (MAS) poll released on Friday showed economists were less optimistic about growth.

But the survey by the central bank began in mid-February - before a raft of positive indicators such as the Purchasing Managers Index and property sales for February, January retail sales and the latest export numbers.

The pickup in the global economy is also making its presence felt in other Asian countries.

Data from the Philippines this week showed exports rose in January for the first time in nine months, while Taiwan, India and South Korea reported annual growth in exports in February.

Economists said Singapore's strong February exports data suggests the economy may grow this quarter and avoid a recession.

The city-state's gross domestic product contracted 2.5 per cent in the last three months of 2011 on a seasonally adjusted and annualised quarter-on-quarter basis.

"The chance of a technical recession or another quarter of contraction is probably removed. Services signs look quite encouraging as well so we might be pleasantly surprised on the growth front in Q1," said Leong Wai Ho, senior regional economist at Barclays Capital.

INFLATION CONCERNS

Even as worries about growth recede, inflation concerns have risen. Economists said the central bank will most likely retain its bias for a modest, gradual appreciation of the Singapore dollar when it issues its half-yearly monetary policy statement in April.

"It seems inconceivable that MAS will loosen its exchange rate stance as many thought likely just a couple of months ago," Credit Suisse's Prior-Wandesforde said.

"Our view remains that the current modest appreciation of the nominal trade weighted exchange rate band will continue, but the central bank may allow the Singapore dollar to rise towards the top of the band, while a small step up in the pace of appreciation is possible."

Leslie Tang, an economist at OSK-DMG in Singapore, said the stronger-than-expected trade data shows the economy could grow by more than the government's 1-3 per cent forecast for 2012.

"There are downside risks of course, such as the euro zone blowing up," said Tang, who is forecasting GDP growth of 4 per cent this year.

Reuters

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