Bloomberg News

Singapore Contraction Tests Strength of Asia Resilience: Economy

January 03, 2012

Jan. 3 (Bloomberg) -- Singapore’s economy shrank for the second time in three quarters, highlighting Asia’s vulnerability to the European debt crisis even as manufacturing strengthens in India and China.

Gross domestic product fell an annualized 4.9 percent in the fourth quarter of 2011 from the previous three months, when it climbed a revised 1.5 percent, Singapore’s trade ministry said today. The median of 11 estimates in a Bloomberg News survey was for a 5 percent contraction. The economy grew 4.8 percent in 2011 and may expand 1 percent to 3 percent this year, Prime Minister Lee Hsien Loong said Dec. 31.

The contraction brings into question Asia’s resilience to a faltering global economy even as regional stocks and currencies climbed after reports showed rising purchasing managers’ indexes in China and India. The Monetary Authority of Singapore, which uses the exchange rate to manage inflation, eased its policy stance last quarter as it juggled protecting growth with containing price gains in the city of 5.2 million people.

“There is no disputing the overall story that Asia remains somewhat resilient to the euro zone, but we should not be overly optimistic,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “There is still a consistent story of slowing growth. I don’t see the effervescence in the markets holding up for too long.”

A Purchasing Managers’ Index for India released by HSBC Holdings Plc and Markit Economics rose to the highest level in six months in December, while one released by China’s statistics department showed manufacturing rebounded from a contraction. Australian manufacturing expanded for the first time in six months in December, driven by gains in basic metals, transport and publishing, a private survey released today showed.

Stocks Climb

A Chinese non-manufacturing PMI jumped to 56 in December from 49.7 in November, the logistics federation and statistics bureau said today.

The MSCI Asia Pacific Index of stocks rose 1.1 percent as of 12:34 p.m. in Singapore. It slumped about 17 percent in 2011, halting a two-year rally in equities. Singapore’s benchmark Straits Times Index climbed 1.1 percent, while the island’s dollar strengthened 0.4 percent to S$1.2920 against the U.S. currency.

“We don’t see the Singapore dollar strengthening on a prolonged basis and we expect it may grow weaker still in the first quarter,” said Enrico Tanuwidjaja, a Singapore-based currency strategist at Malayan Banking Bhd. “People will still flock to the U.S. dollar as risk remains and uncertainty lingers. There is little to be cheery about for the Singapore economy.”

Singapore’s growth will “inevitably be affected” this year in a “difficult” global economy, Prime Minister Lee said Dec. 31 in a New Year message.

Uncertain Environment

“The external environment is uncertain,” Lee said. “Debt problems in Europe are far from solved.”

European leaders return to work this week seeking to buy time for the Spanish and Italian governments to wrest control over their debt and rescue the single currency from fragmentation in its 10th anniversary year.

Purchasing-manager indices for the U.K., Switzerland and Norway due today will show manufacturing contracted in December, while Germany’s economy probably lost jobs for a second month, according to economists surveyed by Bloomberg. Sweden’s central bank will release minutes of its December meeting, where it cut its interest rate for the first time since 2009.

In the U.S., the Federal Reserve will also release minutes of its December meeting, where policy makers left unchanged a statement that economic conditions are likely to warrant “exceptionally low” interest rates “at least through mid- 2013.”

U.S. Manufacturing

Other reports from the U.S. today may show manufacturing and construction spending rose. The Institute for Supply Management’s factory index climbed to a six-month high of 53.4 in December, according to the median of 63 estimates in a Bloomberg survey. Readings above 50 indicate expansion. Spending on construction projects advanced 0.4 percent in November from October, the Commerce Department may say.

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to the world’s second- busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut its reliance on exports.

Manufacturing rose 6.5 percent from a year earlier in the three months ended Dec. 31, after climbing a revised 13.4 percent in the third quarter, the trade ministry said today. The services industry grew 3.2 percent last quarter from a year earlier, after gaining 3.7 percent in the previous three months.

Technical Recession

“Manufacturing and services will continue to be quite weak, and won’t prove supportive of the economy,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. “We may see a technical recession later this year. There is a possibility of more easing in April” when the central bank next reviews its monetary policy stance, she said.

The central bank had tightened monetary policy at each of the three half-yearly reviews before its October decision to slow gains in the currency while continuing with a modest and gradual appreciation. It guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European sovereign-debt crisis. Taiwan’s central bank left borrowing costs unchanged for a second straight quarter last week, while the People’s Bank of China said it will maintain a “prudent” monetary stance and “ensure the continuity and stability” of policy in 2012.

“In Asia, we are already seeing easing in monetary policy and that will continue for the rest of the year,” Chow said. “The global recovery is still very uncertain.”

--With assistance from Sarina Yoo in Seoul and Timothy R. Homan in Washington. Editors: Stephanie Phang, Sunil Jagtiani

To contact the reporter on this story: Shamim Adam in Singapore at

To contact the editor responsible for this story: Stephanie Phang at

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