Economists: Jump in Singapore’s GDP one-off

Fintan Ng
The Star

Singapore may have seen some stabilisation in economic numbers following a big jump in its second-quarter gross domestic product (GDP) by 20.4% on an annualised basis, but it will not be sustainable as the country’s economy is still reliant on exports.

Economists believe the country’s economic recovery, as with the rest of Asia would hinge on demand for the region’s exports from the G3 nations comprising the United States, Japan and the European Union.

Standard Chartered Bank economist Alvin Liew said given the way Singapore’s economy was structured; with a reliance on exports, there would still be a decline for the year although it had stabilised compared with the last quarter of 2008 and the first quarter this year.

He said Singapore’s second quarter GDP growth was the exception rather than the rule compared with the rest of South-East Asia because a substantial portion of the manufacturing sector comprised pharmaceuticals.

Singapore’s trade and industry ministry released the country’s GDP data yesterday that showed pharmaceuticals helped to boost growth in the second quarter with manufacturing falling only 1.5% year-on-year against a contraction of 24% in the previous quarter.

Besides the positive picture in manufacturing, construction rose 18% while services dropped 5.1%.

“Pharmaceuticals make up more than 20% of Singapore’s manufacturing sector, with the exception of Japan, that’s not the case for most of Asia,” Liew told StarBiz.

Both United Overseas Bank Ltd economist Ho Woei Chen and Oversea-Chinese Banking Corp Ltd treasury research and strategy head Selena Ling said the performance of the pharmaceuticals segment was not representative of the economy.

“It’s very difficult to see as the figures are very volatile and swing from month to month.

“If we take the segment out, the electrical and electronic segment is still contracting as there’s no demand,” Ho said.

She has revised the GDP figures for the year upwards to a contraction of 5% compared with a drop of 7.5% earlier.

“We’re still seeing a fall in the services sector due to a lack of domestic demand. Only the financial services segment is supporting the sector but the rest of the sector is still down,” Ho said.

Ling said there could be any number of reasons for the jump in pharmaceutical output. “It could be due to the A (H1N1) flu pandemic,” she said.

She added that given the low base in the second-half of last year, it was likely that there would be a recovery at the end of this year.

Meanwhile, Morgan Stanley Research analysts led by Tan Deyi said in a report that with the second-quarter GDP advance estimate, the first half was now tracking at a contraction of 6.7% year-on-year.

“We’re marking to market our 2009 GDP forecast from minus 10% year-on-year to minus 5% year-on-year to take this into account,” she said.

Tan said that the forecast for the year incorporated a gradual turnaround in the non-pharmaceuticals segments but also assumed a certain normalisation of pharmaceuticals output in the second half.

“With the bottom now behind us, the focus has shifted from how deep and how long to what kind of recovery,” she said.

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