Singapore economy shrinks as manufacturing falters

January 4, 2010
Singapore Democrats

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Shamim Adam

Singapore’s economy shrank for the first time in three quarters as weaker manufacturing output interrupted the island’s recovery from its deepest recession since independence in 1965.

Gross domestic product contracted an annualized 6.8 percent from the previous three months last quarter after climbing a revised 14.9 percent from July to September, the trade ministry said in a statement today. That was worse than the median estimate for a 2.1 percent decline in a Bloomberg News survey of eight economists. The economy shrank 2.1 percent in 2009.

The island’s outlook is closely linked to global conditions and a “sluggish recovery” in demand for exports by companies such as Stats Chippac Ltd. will moderate growth prospects, the government said in November. The opening of two casino-resorts in the coming months will help support the economy this year, according to Nomura Holdings Inc.

“We see the GDP decline as temporary and the economy will pick up this year as the services industry gets a boost from the opening of the casinos and tourism-related sectors,” said Tetsuji Sano, a Singapore-based economist at Nomura Holdings. “The prospects for the rest of Asia are very good, too, as the global economy improves.”

Singapore’s $182 billion economy grew 3.5 percent in the fourth quarter from a year earlier, compared with the median estimate for a 3.8 percent gain in a Bloomberg News survey of nine economists.

Stocks fall

The benchmark stock index fell 0.2 percent to 2,892.17 as of 9:29 a.m. local time. The Singapore dollar was little changed at S$1.4045 versus the U.S. currency.

Singapore is seeking ways to ensure its economy grows in a more sustained manner after three recessions in the past decade. The island’s dependence on electronics and pharmaceutical exports has made it vulnerable to fluctuations in global demand and business cycles, pushing it into a deeper slowdown than many neighbors last year.

“In Asia, countries that are more reliant on export demand may be subjected to more swings than those that are led by domestic demand,” Alvin Liew, an economist at Standard Chartered Plc in Singapore, said before the report. “The prospects for 2010 will be better and we can expect a few more growth drivers for Singapore including financial services and the tourism industry.

Volatile year

The economy is improving after a “volatile” year that saw it shrink for the first time since 2001, Prime Minister Lee Hsien Loong said Dec. 31.

Singapore employers are increasing payrolls and job openings as the economy improves, according to a Ministry of Manpower report last month. Job vacancies rose a seasonally adjusted 46 percent in the third quarter from the previous three months, according to the latest data.

Singapore Press Holdings Ltd., the city’s biggest newspaper publisher, said Dec. 1 that it will restore 50 percent of the pay cuts introduced in April and give special one-off payments to its workers.

Asia has led the world’s recovery from its economic slump, and central banks from Australia to Vietnam have started to increase interest rates or indicate a readiness to exit monetary stimulus.

Still, the region’s rebound could falter as the effect of stimulus measures fade, the Asian Development Bank’s Office for Regional Economic Integration said Dec. 15. Hong Kong Chief Executive Donald Tsang said Dec. 29 an economic “double dip” is possible in the middle of this year.

Monetary policy

Australia and Vietnam raised interest rates last quarter to contain inflation. The Monetary Authority of Singapore said in October it will maintain a zero appreciation stance in its currency policy, refraining from further monetary easing after opting for a de-facto devaluation of the exchange rate in April to counter collapsing exports.

The government, which lowered corporate taxes and tapped its reserves last year to fund record spending, said last week it will extend by a year measures to help companies get financing, after deciding in October to prolong a wage-subsidy program.

“The government will likely be limited in its fiscal stimulus measures, instead focusing on pro-business and investment policies,” Philip McNicholas, an economist at IDEAglobal in Singapore, said before the report. The central bank may have “greater tolerance for a stronger Singapore dollar” amid rising food and energy commodity prices, he said.

Manufacturing wanes

Manufacturing, which accounts for about a quarter of the economy, rose 1 percent from a year earlier last quarter, after gaining a revised 7.9 percent in the three months through September. It fell 38.4 percent from the previous quarter.

“This decline was mainly due to a contraction in the output of the biomedical manufacturing and transport engineering clusters,” the trade ministry said.

The island’s services industry grew 3.7 percent last quarter from a year earlier, after falling 2.2 percent in the previous three months. The construction industry gained 11.2 percent, compared with a 12.8 percent increase in the third quarter.

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 economy will grow 3 percent to 5 percent in 2010, Lee said Dec. 31, reiterating a previous forecast.

The figures today were computed from data for October and November. Revised numbers are due to be released next month.