10 July 2003
Singapore’s economy had its biggest contraction on record in the second quarter after factory orders fell and the SARS virus emptied hotels. The government signaled it will accept a weaker currency to bolster exports and revive growth.
Gross domestic product shrank an annual 12 percent from the previous three months after growing a revised 1.2 percent in the quarter to March 31. That was three times faster than the median forecast of seven economists in a Bloomberg survey for a 3.6 percent decline. From a year earlier, GDP shrank 4.3 percent, the trade and industry ministry said.
“Two or three potential customers couldn’t visit us last quarter because of SARS,” said J.R. Ong, executive director at First Engineering Ltd., which makes plastic and optical parts for Hewlett-Packard Co., Seagate Technology and other clients. “Since they couldn’t come to qualify our plants, some of the new business got delayed.”
Singapore’s report is the most detailed indication yet of the economic damage wrought in Asia by severe acute respiratory syndrome, which infected 206 people, and killed 32 in the city. The disease slashed visitor arrivals by two-thirds in April and May, preventing buyers from visiting factories, prompting Singapore Airlines Ltd. to fire 414 workers and the 116-year-old Raffles Hotel to cut rates by a third.
The 12 percent slide is the biggest drop since the 1970s, when the city-state started collecting quarterly data adjusted for seasonal factors, according to the government’s statistics department.
The Monetary Authority of Singapore, in a twice-yearly policy statement, said it will reset its target trading band for the Singapore dollar to around current levels. The central bank seeks to prevent its currency from rising or falling outside of a band based on a basket of currencies of its biggest trading partners. It doesn’t disclose details of the trading band.
“This represents an implicit monetary policy easing,” said John Tan, a fixed-income strategist at Standard Chartered Plc in Singapore. The GDP contraction “was worse than expected.”
The Singapore dollar fell as much as 0.4 percent to S$1.7616 against its U.S. counterpart after the announcement, according to Bloomberg data. The currency was 0.1 percent lower at S$1.756 at 10:27 a.m. local time. It was down 1.2 percent this year, the worst performer among 15 Asian Pacific currencies tracked by Bloomberg data. The Straits Times Index, the island’s benchmark stock index, rose 0.6 percent to 1532.44.
Singapore’s 2.25 percent bond due in July 2013 rose 0.25, or S$2.50 per S$1,000 face amount, to a price of 98.46 at 9:09 a.m. in Singapore. Its yield fell 3 basis points to 2.42 percent. A basis point is 0.01 percentage point.
The island’s services shrank 3 percent in the second quarter, while manufacturing contracted 7.5 percent from a year earlier, today’s report said.
Even so, the ministry said latest economic data showed the outlook will improve in the next few months.
Global tourism and business travel is reviving, following a World Health Organization announcement last week that the SARS epidemic has been contained. That will help boost sales in Singapore’s shopping malls, retail stores, restaurants and hotels. Overseas visitors account for 6 percent of the city-state’s $88 billion economy, and 12 percent of retail sales on the island.
“Before, we didn’t even see the light at the end of the tunnel,” said John Mims, Singapore-based vice president of sales and marketing in Asia Pacific at Starwood Hotels and Resorts Worldwide Inc. “Now, companies are saying they’re ready to rebook and we’re starting to see that interest come back.”
Starwood manages the Sheraton Towers in Singapore, where the occupancy rate has risen to 40 percent in June from 15 percent in May, hotel owners said.
Evidence is also mounting that economic growth in the U.S. may rebound in the second half of the year.
The U.S. buys almost a fifth of Singapore-made disk drives, semiconductors and other products. The world’s biggest economy is forecast to expand 3.5 percent in the third quarter, more than double the 1.4 pace in the year’s first three months, according to the median forecast of 60 economists in a Bloomberg News survey.
“This quarter is showing a pick-up,” said First Engineering’s Ong, who left today for the U.S., his first business trip since April. “Companies we supply to are building inventories, anticipating good customer turnout at Thanksgiving and Christmas sales.”
That’s also reflected in a Singapore purchasing managers’ survey, that shows manufacturing expanded from a year earlier in June, ending a three-month slump.
“The economy hasn’t really recovered yet,” said Chris Wong, who helps manage $2.4 billion at Aberdeen Asset Management in Singapore. Still, “some of the companies here have indicated that it will be a better half.”
As a result, Singapore’s economic growth for all of 2003 may be as much as 1.3 percent, according to the median forecast of nine economists surveyed by Bloomberg News. Although that’s almost 1 percentage point lower from last year, it’s still an improvement from the government’s estimate that growth could slow to as low as 0.5 percent.
Singapore’s advance GDP estimate for the second quarter is based on two months of data and is subject to revision. A firmer estimate will be announced later.