Signs of a return to expansion emerge

Economy turns in better numbers than earlier estimates in 2nd quarter

SINGAPORE'S economy did better than earlier estimates in the second quarter and now looks on track to return to expansion mode by the end of the year.

The stronger-than-expected showing in the three months ended June 30 is due mainly to a manufacturing boost fuelled by the volatile drugs sector.

Economists are now predicting that Singapore is likely to see a return to positive year-on-year growth numbers in the final quarter of this year.

This is made more likely by the low base in the same period last year when the downturn began to bite hard.

The Ministry of Trade and Industry (MTI) announced yesterday that quarterly growth came in 20.7 per cent higher compared with the disastrous first three months of this year.

When compared with the same period last year, the economy shrank 3.5 per cent. Overall, it contracted 6.5 per cent in the first half of this year.

Flash estimates out last month had been a little weaker, showing quarter- on-quarter growth of 20.4 per cent and a year-on-year slide of 3.7 per cent.

'The economy has probably bottomed out and we are past the worst of the recession,' MTI Second Permanent Secretary Ravi Menon said yesterday.

The bright second-quarter data was boosted largely by manufacturing, which shot up 49.5 per cent compared to the previous quarter after plunging 18.5 per cent in the first three months.

Manufacturing growth was propelled by a surge in the production of active pharmaceutical ingredients and a rise in inventory restocking in electronics.

Financial services improved markedly, growing 22.8 per cent from the first quarter, giving a lift to the services sector.

Most economists expect expansion later in the year.

Mr David Cohen, an economist at Action Economics, said this turnaround will probably take place in the fourth quarter, owing to the low base last year.

Some optimists say growth could kick in as early as the third quarter. A recent BT-UniSIM Business Climate Survey predicted that the economy may grow up to 1.8 per cent in the third quarter.

Citigroup economist Kit Wei Zheng said economic output, or gross domestic product (GDP), would have to surge at least 15 per cent quarter-on-quarter in the period ending Sept 30 to give a positive year-on-year figure.

'This would be challenging under the current conditions of developed economy deleveraging, but not inconsistent with Singapore's past recoveries,' he added.

MTI is sticking to its recently revised 2009 growth forecast for the economy to contract by 4 to 6 per cent. The forecast was upgraded last month from the 6 to 9 per cent decline predicted in April.

Mr Menon said Singapore will hit close to the -4 per cent mark if GDP stays around the current level in the second half of the year.

However, the economy may decline close to 6 per cent if there is a dip in the third or fourth quarter, he said.

HSBC economist Prakriti Sofat calculated that to reach the top end of the forecast range, GDP just needs to be flat in quarter-on-quarter terms for the third and final quarters.

A 4 per cent full-year contraction can also be achieved even if the economy shrinks 4 per cent in the third quarter year on year and grows 1 per cent in the final three months, said DBS economist Irvin Seah. He added: 'This seems pretty easy to achieve, especially if the global economy continues to recover and we see a mild pullback for pharma.'

Overall, MTI's outlook remains cautious. Mr Menon said: 'The recovery will be neither quick nor strong. Fundamental weakness in final demand in advanced economies is likely to constrain the pace of recovery in regional and domestic economies.'

Meanwhile, trade agency IE Singapore said non-oil domestic exports slumped 14 per cent in the second quarter relative to the same period last year but grew 7.6 per cent from the first quarter.

It revised its 2009 forecast for such exports, predicting that these may decline between 10 per cent and 12 per cent, less than its previous prediction of -10 to -13 per cent.

Source: Straits Times, 12 Aug 2009