Wednesday, January 02, 2008

How long will Singapore take to recover from it’s slowing economy performance?

Singapore's economy unexpectedly contracted last quarter as factory output slowed, suggesting Asia's export-dependent markets may face increased risks from slower global growth. Gross domestic product shrank an annualized 3.2 percent after adjusting for inflation, the first decline in 18 quarters, and followed a revised 4.4 percent expansion in the third quarter, the trade ministry said. Economists were expecting a 3.1 percent gain. Singapore's figures give economists an insight into how turmoil in global markets and the subprime-mortgage crisis in the U.S., the region's biggest export destination, may affect Asia's expansion.

“We definitely should expect to see more softness in exports in the next couple of quarters, and that's bad news for electronics-heavy Asian economies,'' said Kit Wei Zheng, an economist at Citigroup in Singapore. “That means slower growth for Singapore and the rest of Asia.''

The Singapore dollar rose 0.1 percent to S$1.4406 per U.S. dollar as of 1 p.m. in Singapore. The benchmark Straits Times Index fell 0.8 percent to 3,453.15. China, South Korea and the Philippines are due to report fourth-quarter GDP numbers later this month, while Japan, Taiwan and Malaysia are scheduled to release theirs in February.

Manufacturing climbed 0.5 percent in the last three months of 2007 from a year earlier, the smallest increase in 4 1/2 years. Output growth slowed from a revised 10.3 percent in the July-September period as pharmaceutical plants produced fewer drugs, the trade ministry said.

The Asian Development Bank last month said growth in emerging East Asia in 2008 will be 8 percent, half a percentage point lower than last year. The region is twice as reliant on exports as the rest of the world, with 60 percent of overseas sales ultimately destined for the U.S., Europe and Japan.

From a year earlier, Singapore's $132 billion economy grew 6 percent in the fourth quarter after gaining a revised 9 percent in the previous three months. Economists were expecting 7.7 percent growth.

“There's no imminent turnaround in electronics and we're unlikely to see a recovery in the next six months,'' said Irvin Seah, an economist at DBS Group Holdings in Singapore. “Pharmaceuticals, a key support for manufacturing, has been losing steam.''

Singapore's electronic exports have dropped each month since February, mired in the worst slump in five years. South Korea yesterday lowered its growth forecast for 2008, pointing to the likelihood of slowing exports. Taiwan is also predicting an easing in overseas shipments this year which it said will make its growth target “highly challenging.''

Singapore's services industry climbed 8.3 percent from a year earlier, matching the growth rate in the previous three- month period. Economists said demand for financial services probably eased as the rout in global credit markets increased risk aversion and the city-state's government implemented measures to cool the property market.

Global stock markets have lost $1.6 trillion in value since October and the collapse of the subprime-mortgage market in the U.S. triggered more than $80 billion in writedowns among the world's largest banks.

“Singapore's financial services industry has been affected by the shadow of the subprime problem,'' Seah said. “Investors are more cautious and that has slowed down activity.''

The island's burgeoning construction industry prevented a wider contraction in the economy last quarter as companies such as Exxon Mobil set up new plants and property developers build new office towers and condominiums. Southeast Asia's fourth-largest economy reported a record S$16 billion ($11 billion) in fixed-asset investments last year. Construction surged 24.4 percent from a year earlier, after a revised 19.2 percent gain in the three months ended September.

The economy advanced 7.5 percent in 2007, easing from a 7.9 percent rate of expansion the year before. The government expects growth to be between 4.5 percent and 6.5 percent in 2008.

Singapore's growth had raised concern the economy is overheating, with consumer prices rising at the fastest pace in more than 25 years. Policy makers expect inflation to be between 3.5 percent and 4.5 percent this year, accelerating from a forecast average of 2 percent in 2007.

Will Singapore government implement strategies to overcome the slow growing economy?