Saturday August 11, 2012
S’pore Q2 contraction less than expected
SINGAPORE: Singapore's trade-reliant economy shrank less than anticipated in the second quarter but the government warned yesterday of continued uncertainties and downside risks.
The wealthy city-state's economy contracted 0.7% in the second quarter from the first on an annualised and seasonally-adjusted basis, not as bad as advance estimates in July that had indicated a contraction of 1.1% but still a surprise to economists.
Weakness in trade-related services appeared to have offset an unexpected surge in pharmaceutical production in June.
On a year-on-year basis, the wealthy South-East Asian economy grew 2% in April-June, slightly better than advance estimates of 1.9% but again short of economists' forecasts.
“There continue to be uncertainties and downside risks. Barring unforeseen shocks, MTI (Ministry of Trade and Industry) expects the Singapore economy to remain on track to grow by 1.5% to 2.5% in 2012,” the ministry said in a statement.
The composite leading index declined by 2.1% on a quarter-on-quarter basis, reversing the increase of 2.9% in the preceding period, it said.
MTI added that tourism, a star performer in previous quarters, had also begun to slow amid the economic uncertainty.
“The growth in visitor arrivals also moderated in recent months... On a quarter-on-quarter basis, the (accommodation and food services) sector declined by an annualised rate of 5.8%,” the ministry said.
Singapore, a major Asian financial and business centre whose trade is three times gross domestic product, tends to be more vulnerable to developments in the global economy because of its greater reliance on overseas markets.
Economists surveyed by Reuters had a median forecast of second-quarter growth of 0.6% quarter-on-quarter and 2.3% year-on-year.
Hopes for a growth recovery in Asia in the third quarter appear to be growing dimmer as Europe's debt crisis drags on, US consumers remain cautious and China's economy struggles to regain traction.
China yesterday reported July export growth of just 1%, well below forecasts, while industrial output data on Thursday was also softer than expected.
Taiwan last week reported a fifth straight month of decline in exports in July and said new orders received during the same month fell at the fastest pace since January, while South Korea's July exports were the worst in nearly three years.
“With this weaker than expected sequential contraction in (Singapore) GDP, and soft external demand in the region, we think that the chance of a technical recession, though modest, is certainly there,” Robert Prior-Wandesforde, an economist at Credit Suisse, said in a research note.
“We think the focus of the central bank is likely to be shifting slightly more towards growth from inflation, and therefore the MAS (Monetary Authority of Singapore) could ease the band at least slightly come October,” he added, referring to Singapore's monetary policy of letting its currency move in an undisclosed band against a basket of currencies of its main trading partners.
Prime Minister Lee Hsien Loong revealed the new full-year growth forecast of 1.5%-2.5% in his National Day speech on Wednesday, from an earlier range of 1%-3%.
The new forecast range “imputes some chance of technical recession,” Citigroup economist Kit Wei Zheng said. Reuters