Bloomberg News

Singapore GDP Topped Survey Last Quarter, Avert Recession

January 02, 2013

Singapore Growth Beat Estimates Last Quarter to Avert Recession

A worker sweeps up leaves on the waterfront across from the central business district in Singapore. Photographer: Munshi Ahmed/Bloomberg

Singapore’s economy expanded more than economists estimated last quarter, averting a recession even after the central bank refrained from monetary stimulus as it sought to contain elevated inflation.

Gross domestic product rose an annualized 1.8 percent in the three months to Dec. 31 from the previous period, when it contracted a revised 6.3 percent, the Trade Ministry said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 1.6 percent expansion. The economy grew 1.2 percent last year, less than a quarter of 2011’s pace.

The World Bank last month raised its outlook for emerging East Asia nations, citing China’s recovery, even as the export- dependent region faces risks from Europe’s protracted sovereign debt crisis. The Monetary Authority of Singapore, which allowed faster currency gains in 2012 to curb price gains, may maintain its appreciation policy after last quarter’s expansion as the island grapples with persistent inflation pressures.

“Global economic conditions will remain challenging in the foreseeable future, and we are not likely to see a notable improvement” until the second half even as China may provide some support, said Leif Eskesen, an economist for HSBC Holdings Plc in Singapore. “This does not mean that the MAS is ready to pull the trigger. Despite the muted growth print and some easing in inflation over the past few months, inflation remains firm and capacity is still very tight.”

U.S. Budget

Asian stocks rose as U.S. lawmakers passed a bill that averted spending cuts and tax gains threatening the economy. The MSCI Asia Pacific excluding Japan Index climbed 1.9 percent as of 2 p.m. in Hong Kong.

The Singapore dollar was little changed at S$1.2207 against the U.S. currency. It gained 6.2 percent last year, and reached a record in October after the central bank said it would maintain a modest and gradual appreciation. A majority of analysts surveyed by Bloomberg predicted the pace of strengthening would slow.

Still, the third-best performance among major Asian currencies last year failed to stem inflation in a nation that uses its exchange rate rather than borrowing costs to manage prices. The central bank forecasts inflation will be in a 3.5 percent-to-4.5 percent range this year, after probably averaging more than 4.5 percent in 2012.

The U.S. Senate passed a bipartisan budget deal yesterday to avert the impact of more than $600 billion of spending cuts and tax increases slated to take effect this year. The House of Representatives voted in favor of the legislation.

More Stable

The expansion in Singapore, among the first in Asia to release fourth-quarter GDP data, signals the region may follow in reporting resilient growth as the global recovery quickens.

“If there’s any plus, we can say, one year down the road, and despite the fiscal cliff, the U.S. economy is in a slightly more stable growth trajectory,” Song Seng Wun, an economist at CIMB Research Pte in Singapore, said before the report. “The Chinese economy looks to be in a slightly firmer growth track.”

China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in December, spurring optimism that a recovery in the world’s second-biggest economy is gaining traction. South Korea may get a growth boost this year as incoming president Park Geun Hye abandons fiscal restraint and increases spending on welfare.

Asian nations loosened fiscal or monetary policies last year to protect growth, with rate cuts in China and Thailand and higher spending by Philippine President Benigno Aquino and Malaysian Prime Minister Najib Razak.

Better Year

“Going forward, what happens will to a large extent depend on things like what stimulus from China looks like, how well the signs of nascent recovery seen in the U.S. is held up,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. Singapore “will do better than it did last year.”

Indonesia said today inflation slowed in December while exports slumped for an eighth month in November. In Thailand, price gains quickened to a 13-month high in December, the government said.

Data to be published in Europe may confirm euro-area manufacturing shrank last month, while German consumer prices rose in December at the same pace as November, surveys showed. The U.S. Institute for Supply Management’s manufacturing index will show the industry rebounded from a contraction, while construction spending climbed in November from a month earlier, economists predicted.

New Phase

Singapore Prime Minister Lee Hsien Loong on Dec. 31 reiterated a forecast for the economy to grow 1 percent to 3 percent in 2013. The island is in a “new phase” of growth where it must adjust to a slower expansion than it has become accustomed to, he said. GDP increased an average of about 6.3 percent in the decade through 2011.

The Singapore economy shrank for four consecutive quarters through the first three months of 2009 as the country suffered its deepest recession since independence in 1965. GDP increased 1.1 percent in the fourth quarter from a year earlier, the Trade Ministry said today, compared with the median estimate for a 1.4 percent gain in the Bloomberg survey.

Located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to one of the world’s busiest container ports, Singapore is grappling with a tight labor market that has helped fuel among the fastest inflation in the developed world.

Hiring Woes

The government has limited the intake of foreigners and overseas labor to avoid overcrowding and ease discontent among citizens on an island smaller than New York City. Companies are now facing hiring constraints that are stifling their expansion plans, one of the reasons Lee cited for last year’s growth slowdown.

Employment increased last year even amid a smaller annual expansion, with the jobless rate at a six-quarter low of 1.9 percent in the three months ended September.

The country’s tax rates are among the world’s lowest, luring investment from companies such as Rolls-Royce Holdings Plc, Europe’s largest maker of commercial aircraft and ship engines, which opened a S$700 million ($572 million) manufacturing and assembly plant in February.

Manufacturing shrank 1.5 percent from a year earlier in the three months ended Dec. 31. The services industry grew 1.5 percent last quarter from a year earlier, while construction expanded 5.9 percent.

The figures today were computed largely from data for October and November and may be revised next month.

To contact the reporter on this story: Sharon Chen in Singapore at schen462@bloomberg.net

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


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