Singapore economy probably grew, adding pressure on currency

April 13, 2010
Singapore Democrats

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Shamim Adam & Jay Wang
Bloomberg

Singapore’s economy probably rebounded last quarter as manufacturing improved and the opening of the country’s first casino boosted services, adding pressure on the central bank to tighten monetary policy this week.

Gross domestic product rose an annualized 17.2 percent in the first quarter from the previous three months, after shrinking 2.8 percent in the October-to-December period, according to the median estimate of 11 economists surveyed by Bloomberg news. The trade ministry will release the data at 8 a.m. tomorrow.

Asian nations are withdrawing stimulus measures taken to counter the global recession as their economies lead the world out of the slump. Singapore property and car prices have climbed as the recovery takes hold, and some economists say the central bank, which uses the currency to conduct monetary policy, will favor a stronger exchange rate in tomorrow’s review.

“Economic data increasingly suggest the economic recovery is becoming more entrenched,” said Philip McNicholas, an economist at Macquarie Group Ltd. in Singapore. “Rising global commodity prices and a turnaround in the consumer price index hint that imported inflation pressures will become more meaningful. It may prompt a move to normalize policy at the April review.”

Regional moves

Since the October review, policy makers in Australia, Malaysia, India and Vietnam have raised interest rates, while China has required banks to set aside more funds as reserves to drain excess money from the economy.

There is also mounting speculation that China, which has pegged the yuan’s exchange rate at about 6.83 per dollar since July 2008, will let its currency, known as the renminbi, appreciate.

“The policy tightening which is now spreading across Asia should encourage the MAS to move sooner rather than later,” said Kevin Grice, an economist at Capital Economics Ltd. in London. “It is also likely that China will soon allow the renminbi to resume its appreciation trend against the U.S. dollar. A firmer renminbi will make the rest of Asia much more tolerant of further currency appreciation as well.”

Exceeded expectations

Singapore’s currency has gained 0.7 percent this year, the worst performer in Asia after Hong Kong and China. The island’s dollar traded at S$1.3917 per dollar as of 7 p.m. local time yesterday, according to data compiled by Bloomberg.

Singapore’s first-quarter economic growth “exceeded” the government’s expectations, China’s Xinhua News cited the Southeast Asian nation’s Senior Minister Goh Chok Tong as saying last week. The trade ministry in February raised its 2010 economic growth forecast for the island to as much as 6.5 percent, from an earlier prediction of as much as 5 percent.

Genting Singapore Plc opened its casino in February, attracting thousands of visitors to the country’s first gaming resort with a Universal Studios theme park and performances by Tom Jones and American Idol finalist Adam Lambert. Visitor arrivals rose 24 percent in February from a year ago.

Asset prices are also climbing as the economy strengthens. Singapore’s private home prices increased 5.1 percent in the first quarter from the previous three months, while permits to buy some types of cars surged to the highest since 2002.

Inflation forecast

Inflation will probably average between 2 percent and 3 percent this year, the government predicts. Consumer prices rose 1 percent in February from a year earlier, the fastest pace in almost a year.

Still, benign inflation and uncertainties in the economic outlook for the second half will probably lead the central bank to maintain its neutral currency stance, said Irvin Seah, an economist at DBS Bank Ltd. in Singapore. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band.

“With the expiry of the fiscal measures introduced last year and likely monetary tightening across Asia in the coming quarters, which would have some cooling effects on exports demand, it is perhaps best for policy makers to wait for more clarity before shifting to a gradual appreciation stance in October,” he said.

http://www.businessweek.com/news/2010-04-12/singapore-economy-probably-grew-adding-pressure-on-currency.html