Singapore GDP expands at record pace

Singapore GDP expands at record pace
July 14, 2010 - 3:28PM

Singapore’s economy expanded at a record 18.1 per cent pace in the first half of the year, spurring the nation’s currency and adding to evidence of Asia’s resilience to the European crisis.

Gross domestic product expanded at a 26 per cent annual pace in the second quarter from the previous three months, after a revised 45.9 per cent gain in January to March, the trade ministry said today. Growth in the first half was the fastest pace since records began in 1975, prompting the government to predict GDP will rise 13 per cent to 15 per cent in 2010.

A year after Singapore exited its worst recession since independence in 1965, tourists are arriving in record numbers, companies have increased hiring and vessels are leaving the city’s ports carrying more cargo. The island’s strengthening economy has added to an Asian rebound that prompted central banks to raise interest rates in recent weeks, even amid concern that Europe’s fiscal woes will slow the global recovery.

''Singapore will be among the fastest-growing countries not just in Asia, but the world, this year,'' said Song Seng-Wun, a regional economist at CIMB Research Pte in Singapore. ''Price pressures are already evident and we expect the central bank to be watching if inflation expectations are raised because of these numbers.''

The nation’s growth has already prompted the central bank to allow the currency to strengthen to temper inflationary pressures. The Singapore dollar is used instead of interest rates to conduct monetary policy.

Currency gains

The island’s currency added 0.4 per cent to S$1.3761 per US dollar, bringing this quarter’s gain to 1.4 per cent. The benchmark Straits Times Index rose for a fifth day, climbing 0.7 per cent and is set for the highest close since April 30.

The cost of insuring Temasek Holdings Pte’s bonds from non- payment using credit-default swaps fell 4 basis points to 43 basis points, the lowest level since June 21, according to Royal Bank of Scotland and CMA prices. Temasek, a state investment company, is often used as a proxy for Singapore sovereign credit risk.

Growth last quarter was more than the median estimate for a 23 per cent increase in a Bloomberg News survey of 12 economists. Singapore’s full-year growth has not exceeded 13 per cent since 1972, when the economy was about a twelfth of last year’s size, according to the statistics department.

Significant momentum

Singapore’s growth suggests ''that the regional recovery retained significant momentum in recent months,'' Brian Jackson, a Hong Kong-based senior emerging markets strategist at Royal Bank of Canada, said in an e-mail after the GDP report. ''We continue to forecast further gradual policy normalization across the region over the rest of the year, including moderate appreciation in the Singapore dollar.''

Policy makers in neighboring Malaysia have raised interest rates three times this year, matching the number of increases by India’s central bank. In Taiwan, Governor Perng Fai-nan moved the key rate 12.5 basis points higher last month and the Bank of Korea unexpectedly increased its benchmark last week.

''With growth likely to remain above trend for the rest of the year, the Monetary Authority of Singapore may be inclined to maintain the policy of gradual appreciation at its October policy meeting,'' Wai Ho Leong, a regional economist at Barclays in Singapore, said in a note after the report. He raised Singapore’s 2010 growth forecast to 14.5 per cent and predicted the currency may climb to S$1.35 per US dollar in one year.

Slot machines

The two casinos run by Genting Singapore and Las Vegas Sands opened in February and April this year after Prime Minister Lee Hsien Loong’s government scrapped a four-decade ban to help double tourism revenue by 2015. The resorts have attracted millions of visitors to their slot machines and baccarat and roulette tables.

The economy grew 19.3 per cent in the second quarter from a year earlier, compared with the median estimate for a 17.3 per cent gain in a Bloomberg News survey.

''Growth in the trade-related sectors was bolstered by healthy global trade flows, while the openings of the integrated resorts and higher visitor arrival numbers contributed to the growth in the tourism-related sectors,'' the trade ministry said in a statement. ''The financial services sector also grew strongly, supported by increased foreign-exchange trading and domestic bank-lending activities.''

Austerity programs

Still, Singapore’s dependence on global trade may mean it’s unlikely to escape the impact of any renewed slowdown. Governments in Europe are embarking on austerity programs to cut budget deficits and households in some of the world’s largest economies are holding back spending, clouding the outlook for the rebound.

''In the European Union, domestic demand remains depressed as concerns over the sovereign-debt crisis persist,'' the trade ministry said. ''The implementation of fiscal austerity measures in some of the economies may further weaken their domestic demand. The weakening of the euro against key trading partners will also dampen import demand in the European Union.''

Signs of a slowdown in the US jobs market have affected consumer confidence, and ''sluggish final demand'' from the world’s largest economy as well as Europe has led to a moderation in manufacturing in Asia, the ministry said.

Singapore’s non-oil domestic exports will probably gain between 17 per cent and 19 per cent in 2010, from a previous projection of as much as 17 per cent, the trade promotion agency said today. Overseas shipments rose 28.7 per cent in June from a year earlier, after increasing a revised 24.3 per cent the month before, the government said.

Bloomberg