Singapore’s economy takes a hit

17 May 2005

Singapore’s economy shrank at a 5.5 percent annual pace in the first quarter, little changed from the government’s earlier estimate, as drug companies cut production.

The contraction reported by the trade ministry today, the first in almost two years, was in line with the median forecast of 11 economists in a Bloomberg survey. The trade ministry revised its growth forecast for 2005 down to a range of 2.5 percent to 4.5 percent from an earlier estimate of 3 percent to 5 percent as a result of the shrinkage.

Prime Minister Lee Hsien Loong’s government is counting on a rebound in global demand for electronics to restore growth to an economy that has suffered three recessions in the past seven years. Chartered Semiconductor Manufacturing Ltd. expects sales to rise in the second quarter, and Venture Corp. Chief Executive Wong Ngit Liong predicts a strong second half.

“Underlying growth in the world economy will support export demand including the electronics sector,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore, who forecasts Singapore’s economy will expand 4 percent this year. “Singapore should be able to benefit from that.”

The trade ministry said an unexpected 13 percent surge in global semiconductor sales in the first quarter indicated a worldwide decline in demand for chips “may not be protracted.”

Disk Drives

Exports of electronics including disk drives made by Seagate Technology Inc. probably rebounded in April, economists said before a separate trade report scheduled for release at 1 p.m. today. Non-oil exports probably rose a seasonally adjusted 3 percent from March, after shrinking 6.7 percent that month, according to the median forecast in a survey of 11 economists.

“The second half looks more promising than the first half,” said Albert Phuay, chief executive of Singapore-based Excelpoint Technology Ltd. which designs and distributes phone equipment. “We may see the introduction of more new models of mobile phones and other electronic products into the market. This will trigger consumer spending and create demand.”

From a year earlier, Singapore’s $104 billion economy, expanded 2.5 percent, little changed from the government’s initial estimate of 2.4 percent. Southeast Asia’s fourth-biggest economy slowed from a 6.5 percent expansion in the fourth quarter.

Manufacturing, which accounts for a quarter of the economy, rose 3.1 percent in the first quarter from a year earlier, little changed from the 3 percent initial estimate. It slowed from a 14 percent expansion in the fourth quarter.

Drug Factories

Drug output fell in the first quarter because manufacturers switched to producing different chemicals and shut plants for cleaning, said Song Seng Wun, an economist at G.K. Goh Holdings Ltd. Shutdowns and expansions cause swings in output because of the small number of drug factories in Singapore.

Chartered Semiconductor, Singapore’s largest chipmaker, had its biggest loss in seven quarters in the three months to March 31. Venture, which makes computer printers for Hewlett-Packard Co., said profit fell 1.3 percent in the quarter. Electronics account for half of Singapore’s exports.

The U.S. economy, Singapore’s second-biggest export market after the European Union, grew at a 3.1 percent annual pace in the first quarter, the slowest in two years. Inventories swelled as consumers and businesses reined in spending.

Chartered on April 22 said it expects sales to rise to $193 million in the current quarter from $181.4 million in the first. The company said it expected to use 65 percent of its capacity this quarter compared with 59 percent in the previous three months.

Retail Trade

Venture Chief Executive Wong said at an April 28 briefing he expects the second half to be “strong.”

Services including wholesale and retail trade, lodging and banking gained 3.5 percent from a year earlier in the first quarter, unchanged from the initial estimate. Services had expanded 4.8 percent in the fourth quarter.

Construction shrank 7.3 percent from a year earlier, declining for the 15th quarter in 16. The government had initially estimated a 6.5 percent decline.

Continued growth in China, which along with Hong Kong accounted for almost 18 percent of Singapore’s exports in 2004, augurs well for Singapore’s growth prospects, analysts and investors including Christopher Wong said.

The world’s fastest-growing major economy expanded in the first quarter by a more-than-expected 9.5 percent from a year earlier, matching the fourth quarter’s gain.

“I’m still cautiously bullish about prospects for this year’s growth,” said Wong, who helps manage $10 billion of Asian stocks at Aberdeen Asset Management in Singapore. “To a certain extent that’s going to be driven by strong growth in China.”

— With reporting by Andrea Tan and Yoolim Lee in Singapore. Editors: Dwyer, T.Jordan, Dwyer.