Bloomberg News

Singapore GDP Growth Beats Initial Estimate as Asia Recovers

February 21, 2013

Singapore Economy Expanded More Than Expected in Fourth Quarter

People look out over the central business district skyline in Singapore. GDP expanded 1.5 percent last quarter from a year earlier, today’s report showed. The economy grew 1.3 percent last year, and the trade ministry reiterated its forecast for a 1 percent to 3 percent expansion in 2013. Photographer: Munshi Ahmed/Bloomberg

Singapore’s economy expanded more than initially estimated last quarter after a smaller contraction in manufacturing, adding to evidence of a recovery in Asia. The island’s currency rose.

Gross domestic product rose an annualized 3.3 percent in the three months through December from the previous quarter, when it shrank a revised 4.6 percent, the Trade Ministry said in a statement today. That compares with a January estimate of 1.8 percent and the median in a Bloomberg News survey for a 2 percent expansion.

“We are seeing an improvement from some of the worst days of last year,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “The leading indicators seem to point to small but modest, positive growth in 2013.”

Recoveries in China and the U.S. have improved the outlook for the region, with economies from Malaysia to Thailand reporting faster GDP growth for last quarter. The Monetary Authority of Singapore, which allowed faster currency gains in 2012 to curb price increases, may maintain its appreciation policy at its April meeting as the island grapples with persistent inflation pressures, according to Bank of America Corp. economist Chua Hak Bin.

Better Outlook

“We’re still holding on to a 3 percent growth outlook for the full year,” Vincent Conti, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. (ANZ), said before the report. “That’s being driven by a better outlook for the global economy in general, particularly from the U.S. as well as China.”

The Singapore dollar rose 0.2 percent to S$1.2392 against the U.S. currency as of 9:26 a.m. in Singapore. It was little changed before the release.

The central bank hasn’t had to take “extraordinary” measures in its money or currency markets as the unintended consequences of monetary policy in other economies are being accommodated by the current exchange-rate system, Edward Robinson, assistant managing director of the economic policy department at the authority, told reporters today.

The island’s monetary policy stance remains unchanged as announced in October, he said. The currency’s gains has trailed those of the Thai baht, South Korean won and Philippine peso in the past six months even as monetary easing in developed markets spur inflows to the region.

Strong Currencies

Officials from South Korea to South America have warned their currencies are too strong, even as nations in the Group of 20 say they’ll refrain from competitive devaluation. New Zealand’s central bank governor said this week he’s ready to intervene in foreign-exchange markets.

Singapore guides its exchange rate against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width or center. The Singapore dollar remains within the policy band, Robinson said today.

GDP expanded 1.5 percent last quarter from a year earlier, more than the 1.1 percent estimated previously, today’s report showed. The economy grew 1.3 percent last year, up from an initial estimate of 1.2 percent, and the Trade Ministry reiterated its forecast for a 1 percent-to-3 percent expansion in 2013. The government today kept its forecast for non-oil domestic exports to rise 2 percent to 4 percent this year.

Receding Risks

“While downside risks have receded, the global economic outlook is still clouded with uncertainties,” the Trade Ministry said. “In particular, concerns remain over the extent of the fiscal cutback with the budget sequester in the U.S., as well as the potential flare-up of the debt crisis in the euro zone. Should any of these risks materialize, Singapore’s economic growth could come in lower than expected.”

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 rates in the developed world.

Price gains have remained elevated even after the central bank tightened monetary policy last year by allowing its currency to appreciate, as private property prices reached a record and the cost of owning a vehicle surged. Inflation averaged 4.6 percent last year and prices are forecast by the central bank to rise 3.5 percent to 4.5 percent in 2013.

The island is the third-most expensive Asian city to live in and the sixth globally, according to an Economist Intelligence Unit ranking of 131 cities published this month.

Rare Protest

Finance Minister Tharman Shanmugaratnam will present the nation’s annual budget to Parliament on Feb. 25 where he may announce more measures to reduce the country’s reliance on overseas labor while providing incentives to businesses to boost productivity, economists at Citigroup and Oversea-Chinese Banking Corp. said.

Thousands gathered in a rare political protest on Feb. 16, signaling concerns that foreigners are taking jobs from locals and driving up housing costs haven’t abated even after Prime Minister Lee Hsien Loong tightened hiring rules in recent years.

“Singapore’s dependent a lot on labor force growth to drive their GDP growth,” said ANZ’s Conti. The increased labor pressure faced by companies could “drive them to shift their production to other countries and that could result in a hollowing out of the manufacturing sector in Singapore,” he said.

Manufacturing shrank 1.1 percent from a year earlier in the three months ended Dec. 31, compared with a January estimate of a 1.5 percent contraction. The biomedical industry made up 25.5 percent of manufacturing last year, overtaking electronics at 25 percent. The services industry grew 1.7 percent last quarter from a year earlier, while construction expanded 5.8 percent.

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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