Bloomberg News

Singapore GDP Growth Seen Near Zero May Slow Currency Gains

October 12, 2011

(Updates with South Korea rates in eighth paragraph.)

Oct. 13 (Bloomberg) -- Singapore’s economic growth probably nearly stalled last quarter as a faltering global recovery hurt exports, putting pressure on the central bank to join nations from Indonesia to Pakistan in easing monetary policy.

Gross domestic product probably rose an annualized 0.8 percent last quarter from the previous three months, when it fell 6.5 percent, according to the median of 16 estimates in a Bloomberg News survey. The Monetary Authority of Singapore, which uses the island’s dollar as its main tool to manage inflation, may slow or end currency appreciation, a separate survey showed. Both reports will be released at 8 a.m. tomorrow.

Any return to recession for the global economy would threaten a Singaporean economy that saw an 11 percent collapse in exports in 2009. With a potential Greek default threatening to reverberate through world financial markets, Singapore may shift to stimulus measures just six months after its last monetary tightening.

“With the U.S. and European indicators pointing to a sluggish, faltering recovery and no signs of any determined policy response, Singapore’s investment and external demand could only have deteriorated further in the third quarter, bringing down overall GDP growth,” said Vincent Conti, a Singapore-based analyst at Australia & New Zealand Banking Group Ltd. “The MAS will likely shift to a neutral stance.”

Singapore Dollar

The central bank said in April it would allow further currency appreciation to tame price gains, the third monetary policy tightening in a year. The Singapore dollar reached unprecedented levels since then, trading below S$1.20 against its U.S. counterpart in July. It has dropped 6.1 percent since the beginning of August.

The monetary authority guides the Singapore dollar against a basket of currencies within an undisclosed band. It adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

The island located at the southern end of the 600-mile (965-kilometer) Malacca Strait is among the first countries in the region to report third-quarter data.

The global slowdown has prompted some Asian central banks to start cutting interest rates or refrain from increasing borrowing costs. The Bank of Korea left its key rate unchanged today at 3.25 percent for a fourth straight month.

Singapore’s economy will probably expand at a slower pace in the next few years and the central bank will continue “judicious management” of its currency to curb inflation and support growth, Finance Minister Tharman Shanmugaratnam said Oct. 11.

Overseas Demand Risks

The city state, home to the world’s second-busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even after Prime Minister Lee Hsien Loong’s administration boosted financial services and tourism. The government forecasts growth of 5 percent to 6 percent this year, lower than an earlier forecast of as much as 7 percent expansion.

The economy probably grew 5.6 percent in the third quarter from a year earlier, according to the median estimate of 19 economists surveyed by Bloomberg News.

The monetary authority will remain “vigilant” against a resurgence in inflationary pressures and price gains are expected to moderate toward the end of 2011, Shanmugaratnam said this week.

The central bank raised its inflation estimate for 2011 in July to 4 percent to 5 percent, from a previous estimate of 3 percent to 4 percent. Inflation in August accelerated to the fastest pace since 2008 as consumer prices rose 5.7 percent from a year earlier.

--Editors: Sunil Jagtiani, Cherian Thomas

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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