Singapore Raises 2009 Economic Forecast Amid Recovery
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 benchmark stock index has surged 51 percent this year as a rebound in manufacturing helped the nation emerge from its worst recession since independence in 1965. Asia is leading the world’s recovery from its economic slump after 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.
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 opted for a de-facto devaluation of the Singapore dollar in April to help reverse a collapse in exports.
The currency fell 0.3 percent as at 8:08 a.m. in Singapore.
Raising Rates
Central banks around the world have begun to indicate a willingness to raise interest rates as inflation returns with economic recovery.
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.”
“Uncertainties over the pace of the withdrawal of monetary and fiscal stimulus measures pose an additional risk,” the trade ministry said today. “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.”
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.
‘Extremely Volatile’
“Singapore’s economy is extremely volatile” and the boost to growth from companies rebuilding inventory and government stimulus is starting to fade, said Hildebrandt low interest payday loans. “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.”
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, better than the median estimate for a 0.5 percent gain in a Bloomberg survey of 16 economists. The government has raised its 2009 economic forecast twice this year from an April prediction for a contraction of as much as 9 percent.
Manufacturing
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 industrial output climbed in the first two months of last quarter, and the island’s exports fell the least in almost a year in August.
“The economy looks to have a broad-based recovery under way across most sectors,” said Philip McNicholas, an economist at IDEAglobal in Singapore. “The services sector, led by financial services and retail trade, should show further improvement and underpin the recovery. The same is true for much of the manufacturing sector, with the electronics cluster being a key driver.”
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.
2010 Growth
The island’s private residential property prices rose last quarter for the first time in more than a year. The government said last month it would introduce new measures to prevent excessive price swings in the property market following signs that speculative home buying may be on the rise.
“Looking ahead, the economy is not expected to sustain the strong pace of expansion” seen in the second and third quarters, the central bank said. “GDP growth in 2010 is expected to be slower than in previous post-recession periods.”