Singapore economic contraction lowered with recession over (Roundup)

Oct 12, 2009, 2:52 GMT

   Singapore - Singapore's government on Monday forecast that the economic contraction it expects in 2009 would be lower than originally feared as the city-state's export-dependent economy emerged from its worst recession in history in the third quarter.

   Singapore's gross domestic product (GDP) was expected to shrink 2 to 2.5 per cent for the year, far better than the previous forecast of a 4- to 6-per-cent contraction, the Trade and Industry Ministry said.

   The revision was made after the city-state's economy showed its first year-on-year expansion after three quarters of decline, climbing 0.8 per cent in the third quarter, driven mainly 'by the continued expansion of the biomedical and manufacturing output and improvements in the trade-related and tourism sectors,' the ministry said.

   In the second quarter, Singapore's economy had contracted 3.2 per cent year-on-year.

   The jump in GDP was far greater on a quarter-by-quarter basis. According to advance GDP estimates based largely on figures from July and August, the ministry said it expected Singapore's economy to climb 14.9 per cent in the third quarter compared with the previous quarter after a 22-per-cent rise in the second quarter.

   Looking ahead, 'A clear but modest recovery is under way globally, at least for the next three or four quarters,' the ministry predicted, noting that one-off factors like fiscal stimulus measures would continue to support growth in the near term.

   'A sustained recovery in private consumption and investment in the developed economies is needed to support growth momentum into the second half of 2010,' it advised.

   However, high unemployment and stagnant incomes would weigh down private demand with uncertainties over the pace of a withdrawal of stimulus measures posing an additional risk, it warned.

   'While these factors may dampen growth in the second half of 2010 and result in an uneven recovery, the likelihood of a return of recessionary conditions is low in the absence of further financial shocks,' the ministry said.

   'Singapore's economic prospects in 2010 will be closely tied to the conditions in the external environment,' it added.

   Separately, Singapore's central bank said the economy was not expected to sustain the strong quarter-to-quarter pace of expansion seen in the second and third trimesters.

   Because final demand in the city-state's key export markets had yet to recover decisively and household spending, particularly in the United States, continued to be constrained by the weak labour market and other factors, 'the Singapore economy is likely to settle at a more gradual pace of expansion,' said the Monetary Authority in a statement.

   'Against continuing weakness and uncertainties in the external economic environment, the strength of the recovery in the Singapore economy is expected to be moderate beyond the initial uplift,' the central bank said, adding that it would keep its loose monetary policy unchanged.

   From July to September, the trade ministry said manufacturing expanded by nearly 35 per cent quarter-on-quarter on the back of a 58.5-per-cent spike in the previous quarter.

   But the construction sector declined by 0.6 per cent in the third quarter after an expansion of 32.7 per cent in the second quarter 'because of slower construction activity for industrial building projects,' the ministry said.