Singapore’s economy shrank for the first time in three quarters as manufacturing fell, adding to evidence of easing Asian growth with global risks rising. The island’s currency weakened from a record.
Gross domestic product fell an annualized 7.8% in the second quarter from the previous three months, when it climbed a revised 27.2%, the trade ministry said today, citing preliminary data. The median estimate of 13 economists surveyed by Bloomberg News was for no growth.
Europe’s debt crisis and rising US unemployment are threatening global growth, with more than US$2.6 trillion wiped off stocks worldwide since the beginning of May. Asia’s rebound from the 2009 world recession also faces threats from within the region as China reported a slower second-quarter expansion yesterday, reducing the scope for further monetary policy tightening in the region.
“Growth in Singapore in the second half may be muted if developments in the US and Europe take a turn for the worse,” Song Seng Wun, an economist at CIMB Research Pte in Singapore, said before the report. “Inflation has peaked and there is no compelling reason for the Monetary Authority of Singapore to tighten further” at its next review in October, he said.
The Singapore dollar, the best performing Asian currency after the Korean won in the past year, traded at $1.2172 against its US counterpart at 8:12 a.m. today, paring gains after climbing to a record $1.2156 before the report. The currency has reached unprecedented levels since the central bank, which uses the exchange rate to manage inflation, said in April it would allow further appreciation to tame price gains.
Central banks in Australia and Malaysia have kept interest rates unchanged this month to assess growth risks, even as China and Thailand boosted borrowing costs.
Currency Policy
Singapore’s GDP increased 0.5% in the second quarter from a year earlier, compared with the median estimate for a 1% gain in the Bloomberg News survey. The government forecasts an expansion of 5% to 7% this year after a record 14.5% pace in 2010.
The central bank, which tightened monetary policy for the third time in a year in April, guides the local dollar against a basket of currencies within an undisclosed band. Consumer prices rose 4.5% in May compared with a 5.5% gain in January, an easing that may encourage policy makers to hold off on allowing faster currency gains in the October review.
“Given inflation is showing signs of peaking, there is for now less pressure on the MAS to tighten, given past hawkishness,” said Perry Kojodjojo, a currency strategist at HSBC Holdings Plc in Hong Kong. April’s policy statement “suggested a greater sense of caution over the tail risks to growth and a desire to avoid excessive strength in the Singapore dollar. This suggests the hurdle for further tightening is much higher than previously.”
‘Bullish’ View
HSBC remains “bullish” on the Singapore dollar, Kojodjojo said.
The city state, home to the world’s second-busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even after the government boosted financial services and tourism. The island located at the southern end of the 600-mile (965-kilometer) Malacca Strait is among the first countries in the region to report second- quarter data.
China’s economy, Singapore’s biggest single export market in the five months through May, expanded 9.5% from a year earlier last quarter after a 9.7% gain the previous three months. Exports by Singapore companies such as electronics manufacturing services provider Venture Corp. are predicted by the government to grow in 2011 at less than half of last year’s pace, when overseas shipments jumped the most since 2003.
Casino Boost
Manufacturing fell 5.5% from a year earlier in the three months ended June 30, after gaining 16.4% in previous period.
Singapore’s services industry grew 3.3% last quarter from a year earlier, after climbing a revised 7.6% in the previous three months. The construction industry grew 1.6%, compared with a 2.4% increase in the first quarter.
Companies from Singapore Airlines to hotel operator Shangri-La Asia are benefitting from gains in tourism as visitors arrive in record numbers, lured by the city’s two casinos run by Genting Singapore Plc and Las Vegas Sands Corp.
Singapore expects as many as 13 million tourists to visit this year compared with 11.6 million in 2010, S. Iswaran, second minister for trade and industry, said this week. Tourism receipts are forecast to rise to $22 billion to $23 billion this year from about $18.9 billion in 2010, he said.
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