Singapore Output Drops as Fitch Cuts Asia GDP Forecasts: Economy
December 23, 2011, 2:19 AM ESTBy Shamim Adam
Dec. 23 (Bloomberg) -- Singapore’s industrial production unexpectedly declined in November, adding to evidence of a weakening Asian outlook that prompted Fitch Ratings to cut its growth forecasts for the region.
The island’s output fell for the first time in six months, putting pressure on policy makers to support growth even as a separate report showed inflation accelerated in November. Emerging Asia will expand 6.8 percent in 2012, Fitch said in a report distributed today, less than its June forecast of 7.4 percent. The company raised its 2011 and 2012 estimates for inflation in the region.
Asian nations from Thailand to Indonesia and Malaysia have reduced interest rates or left them unchanged in recent meetings to shield their economies from the protracted European debt crisis even as inflation remains elevated. Singapore’s central bank, which uses the exchange rate to manage price gains, said in October it will slow gains in the currency, and Manulife Asset Management predicts pressure for the Singapore dollar to appreciate will ease.
“We’re already seeing slower growth across Asia and the deterioration will probably be more evident in the first half,” said Edward Lee, regional head of rates strategy at Standard Chartered Plc. “Inflation is the problem here as it’s been high and relatively sticky. It’s difficult for policy makers but they’ll have to focus on growth” and most central banks will have to keep easing monetary policy, he said.
Singapore Dollar
The Singapore dollar has fallen 0.6 percent against its U.S. counterpart this year, joining most Asian currencies in depreciating as the worsening global outlook threatens demand for the region’s exports. The island’s currency rose 0.2 percent to S$1.2909 per U.S. dollar at 2:54 p.m. local time today.
Asian stocks rose today, with a benchmark index set for its highest close since Dec. 13 after data showed a drop in U.S. jobless claims yesterday. The MSCI Asia Pacific Index advanced 0.8 percent.
In the U.S., reports today may show personal spending, durable-goods orders and new home sales rose in November, according to Bloomberg surveys.
Still, Taiwan may say today industrial production fell in November for the first time since 2009. Output dropped 2.8 percent last month from a year earlier, according to the median estimate of 13 economists surveyed by Bloomberg News.
Vietnam Inflation
Vietnam’s inflation slowed for a fourth month in December, a report showed today, adding to the case for the central bank to lower interest rates even as the nation grapples with the quickest price gains in Asia. Prices rose 18.13 percent in December from a year ago, compared with a 19.83 percent pace reported earlier for November.
In Europe, Russia will probably leave interest rates unchanged for a third month today as central bank Chairman Sergey Ignatiev seeks to keep inflation in check before presidential elections in March. The refinancing rate will remain at 8.25 percent after two quarter-point increases this year, according to 20 of 22 economists in a Bloomberg survey.
Consumer confidence in Italy probably deteriorated in December, according to another survey.
Singapore’s government forecasts economic growth will slow next year. Manufacturing, which accounts for more than a fifth of the Singapore economy, fell 9.6 percent from a year earlier after a revised 22.2 percent increase in October, the Economic Development Board said. The median of 13 economists surveyed by Bloomberg News was for a 12.2 percent gain.
Policy Outlook
Singapore’s inflation rate was 5.7 percent in November, matching the fastest pace of price gains since 2008, the Department of Statistics said in a separate report.
“Food and housing costs, along with wage inflation have remained elevated for the past few months, adding to inflationary pressures,” said Cheng Duan Pang, head of fixed income at Manulife Asset Management in Singapore. Still, “we expect upward pressure on the Singapore dollar to reduce as the market will form expectations that monetary policy could revert to a neutral stance as inflationary pressures ease” amid slowing growth, he said.
Fitch raised its 2011 inflation estimate for Emerging Asia by 0.3 percentage point to 5.9 percent and increased its 2012 forecast to 4.9 percent from 4.7 percent, even as it lowered growth forecasts.
“The deterioration in the outlook for the world economy and the lagged impact of policy tightening in some countries, including the region’s two giants, China and India” prompted the cut in GDP forecasts, credit analysts led by Andrew Colquhoun, head of Asia-Pacific sovereigns, said in the report.
China Forecast
Fitch cut its 2012 growth forecast for China to 8.2 percent from 8.5 percent previously. In India, where the ratings company says inflation and monetary tightening are weighing on investment, it predicts the economy will expand 7.5 percent in the year ending March 2013, compared with an earlier estimate of 8.2 percent.
“Both China and India face a combination of slowing activity and stubbornly high inflation, underlining the risks that can arise from allowing inflation to rise above desired ranges,” the Fitch analysts said. “Moreover, the Indian rupee weakened to an all-time low against the U.S. dollar of around 52 in November 2011. If sustained, this level could give a further upward kick to inflation in 2012 and complicate policy management still further.”
--Editors: Stephanie Phang, Linus Chua
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
