Singapore GDP contracts in 2Q as manufacturing falls

Singapore’s economy unexpectedly contracted in the second quarter after manufacturing slumped, hurt by a tighter labour supply.

Gross domestic product fell an annualised 0.8% in the three months through June from the previous quarter, when it expanded a revised 1.6%, the trade ministry said in a statement today. The median of 17 estimates in a Bloomberg News survey was for a 2.4% gain.

Singapore’s government has stepped up efforts to lure new industries such as research and development as it reshapes the economy while cutting reliance on cheap overseas workers. Manufacturers are grappling with higher costs in a tight labor market, even as recoveries in the U.S. and Europe improve the outlook for the island’s exports.

“The effect of restructuring is biting and companies are feeling the pain,” Irvin Seah, a senior economist at DBS Group Holdings Ltd. in Singapore, said before the report. “We’re seeing very pronounced moderation in the services sector, as they suffer from a severe labour crunch.”

The Singapore dollar has risen 0.4% this quarter. The central bank, which uses the island’s dollar to manage price pressure, in April said it will maintain a modest and gradual appreciation of the currency.

Consumer prices rose 2.7% in May from a year earlier, the fastest pace in 14 months. The monetary authority forecasts inflation to average 1.5% to 2.5% this year.

Tighter Labour

Singapore Prime Minister Lee Hsien Loong’s government has tightened the hiring of foreigners in recent years after an influx led to voter discontent over infrastructure strains and increased competition for jobs, property and education.

The economy expanded 2.1% in the three months through June from a year earlier, after growing a revised 4.7% in the previous three months, today’s report showed. That compares with a median estimate of a 3.1% gain.

Manufacturing fell 19.4% in the second quarter from the previous three months, data showed. Services rose 5.2% in the same period, while construction gained 2.6%.

The figures released today were computed largely from data for April and May and may be revised.