Singapore economy recovering after 2009 contraction

January 1, 2010
Singapore Democrats

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Shamim Adam
Bloomberg

Singapore’s economy is improving after a “volatile” year that saw it shrink for the first time since 2001, Prime Minister Lee Hsien Loong said.

Gross domestic product fell 2.1 percent in 2009, Lee, 57, said in his New Year message yesterday. That’s in line with the government estimate for a contraction of 2 percent to 2.5 percent. The trade ministry forecasts the economy will expand 3 percent to 5 percent in 2010, an estimate reiterated by Lee.

“Our economy is growing again, and has recovered much of the ground since the recession began” in 2008, Lee said. “Worldwide, economies have stabilized. The U.S., Japan and Europe are starting to grow again, although problems remain and no one expects an exuberant boom.”

Singapore joined other Asian nations in emerging from a global economic slump last year after the region’s governments unveiled about $1 trillion in stimulus measures to spur growth. Still, a “sluggish recovery” in overseas demand for goods made by companies such as Stats Chippac Ltd. may moderate growth prospects in the coming months, the government said in November.

The economy grew 3.5 percent in the fourth quarter from a year earlier, Lee said. That compares with the 3.8 percent median forecast of nine economists surveyed by Bloomberg News.

GDP probably contracted an annualized 2.1 percent in the fourth quarter from the previous three months, after climbing 14.2 percent from July to September, according to the median estimate of eight economists surveyed by Bloomberg. The trade ministry will release the economic data at 8 a.m. on Jan. 4.

Vulnerable recovery

Lee’s estimates yesterday suggest the Southeast Asian economy may have shrunk as much as 5 percent in the fourth quarter from the previous three months, said Song Seng-Wun, an economist at CIMB-GK Securities Pte in Singapore.

The likely “contraction in the fourth quarter after two strong quarters highlights the vulnerability of the recovery,” Song said after Lee’s message yesterday.

Asia’s rebound could falter as the effect of stimulus measures fade, the Asian Development Bank’s Office for Regional Economic Integration said Dec. 15. The U.S., Asia’s largest export market, needs to prepare for a second stimulus package as there’s a “significant” chance that growth will slow in the second half of 2010, Nobel Prize-winning economist Joseph Stiglitz said Dec. 21.

The global economy will experience “modest” growth this year even as “the worst is behind us,” Lee said in a Dec. 30 commentary written for Bloomberg News. Still, Asia is expected to resume its “rapid” growth, he said yesterday.

Stimulus measures

Singapore’s economy shrank in the 12 months through March as the worst global recession since World War II curbed exports, prompted tourists to stay away and damped consumer spending.

The government cut corporate taxes and tapped its reserves to fund record spending last year in an effort to minimize job losses and help businesses and workers. It said this week it will extend by a year measures to help companies get financing, after deciding in October to prolong a wage-subsidy program.

Economic growth in 2010 may be supported by the services industry amid the opening of two casino resorts, said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore. Genting Singapore Plc unit Resorts World Sentosa plans to open its $4.5 billion project in early 2010, and Las Vegas Sands Corp. says it may open the Marina Bay Sands in April.

The government said in November it doesn’t expect a return to recessionary conditions even as the outlook for the second half of 2010 remains uncertain.

Shifting gears

Singapore is seeking ways to ensure its economy grows in a more sustained manner after three recessions in the past decade. Lee announced the formation of the Economic Strategies Committee in May, which is due to unveil its recommendations this month.

“We must shift gears, to grow by qualitative improvement: transforming the economy, developing skills and growing talent, both our own and from abroad,” Lee said.

The city, which has 3.73 million citizens and permanent residents and 1.25 million non-residents, may ease the number of foreigners entering the country to work and live, Lee said.

“We will manage and moderate the inflow of foreign workers so that Singaporeans are not overwhelmed by the sheer numbers,” he said. “But we must continue to welcome hardworking, enterprising people to our shores. We need them to both expand our talent pool as well as to top up our own population and make up for our low birth rates.”

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