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Singapore Growth Slides a Bit for the 2nd Quarter

Posted on August 11th, 2010

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Singapore failed to reach initially estimated economic growth rates due to a slowdown in its manufacturing sector in June, and growth from here on is projected to slow after taking a record pace during the first half, according to a government statement. In a survey conducted by Bloomberg News, seven economists projected Singapore’s economy to expand by 25.2 percent. However, data revealed that gross domestic product expanded 1.2 percent short of estimates, at only a 24 percent annualized rate in the quarter of April, May and June, compared to a estimate of 26 percent for the month of July, according to the country’s trade ministry.

The rapid growth rates are expected to slow down as the country’s growth is said to moderate in the following month, according to a statement in August 8 by Prime MinisterLee Hsien Loong. Since Singapore, like most Asian countries, are heavily reliant on exports, growth is expected to weaken a bit as European governments adapt austerity programs to decrease deficits, which in turn will make households in a number of the world’s largest economies cut back on spending. But despite the measured growth in the upcoming months, the city state should already be happy that it has posted double digit economic growth figures, which has signaled a complete rebound from a global slump experienced last year.

Alan Liew, an economist in Singapore’s Standard Chartered Plc. Pointed out that the growth momentum may have decelerated, economists expect a “more marked moderation” that what the government expected for the second half. According to him, the first half of 2010 already saw the peak of the manufacturing sector, and the pharmaceutical sector, which is known to either grow or decline fast, is still unknown. So far, the Singapore dollar has fallen by 0.3 percent as of press time to S$1.3509 to the US dollar. For the second quarter, the currency has gained as much as 3.3 percent though, making it the third best performing currency in Asia.

Meanwhile, its stock exchange market, the Straits Times Index has so far outperformed its Asian peers like Japan’s Nikkei, Hong Kong’s Hang Seng, China’s and Taiwan’s China has still been performing well, at 2,998.84 points as of press time. In an interview with reporters, the Deputy Managing Director of the country’s central bank, Ong Chong Tee, described Singapore’s currency policy stance as remaining “appropriate”. He claims that to use the exchange rate as a tool in managing rising property prices as “too blunt.” Meanwhile, the Trade Ministry’s permanent secretary, Ravi Menon, said that the real estate market of the country is not facing the possibility of overheating, even with the temporary pressure on residential property being observed. Menon added that Singapore may be experiencing a technical recession, or negative growth in two consecutive quarters. Even with the forecast for consumer prices projected to increase between 2.5 percent to 3.5 percent in 2010, he says that the pressure brought by inflation is ‘not alarming.”

In a statement released by the country’s trade ministry, one of the factors pointed to affect household spending in the US which will ultimately affect Singapore is the continuing failing of the labor and housing markets, in combination with consumer confidence decline in the US. The situation in Southern European economies such as Portugal, Spain, Italy and Greece is also expected to continue being frail and the ministry expects little and slow recovery in final demand for exports in the European Union. In the same quarter last year, Singapore’seconomyexperienced an 18.8 percent growth rate. In 2009’s first quarter, the GDP increased by 17.9 percent. However, this year, as seen in the figures, the trade ministry does not expect the first quarter’s steadily high growth to continue to the second quarter, although the rates continue to be healthy. The overall growth is also expected to be affected by shutdowns in plant maintenance conducted by the biomedical manufacturing sector.

Last year, manufacturing growth also fell a bit short from initial estimates. The increase was projected at 45.5 percent, compared to real growth of 44.5 percent. One-fourth of Singapore’s economy is attributed to the manufacturing industry. An 11.2 percent growth was experienced by the services sector while construction gained 11.5 percent. The tourist industry continues to be brisk so far, though, as two casino resorts under Genting Singapore and Las Vegas sands Corporation triggered tourist arrivals in the country to exceed the 1 million mark just for a single month in July. The financial services group posted a 10.2 percent last quarter. Overall, the government continues to pin its projected growth for the entire year to be at 13 to 15 percent.