Singapore economy shrinks, dodges recession

PUBLISHED : Friday, 12 October, 2012, 11:56am
UPDATED : Friday, 12 October, 2012, 12:03pm

Singapore’s economy shrank by 1.5 per cent in the third quarter but avoided a technical recession after growth in the previous three months was adjusted upwards, government figures showed Friday.

The Ministry of Trade and Industry said the export-driven city-state was still on track to achieve annual growth of 1.5-2.5 per cent in 2012.

“Economic growth in the second quarter was better than expected, resulting in an upward revision of quarter-on-quarter annualised growth from the preliminary estimates of minus 0.7 per cent to (plus) 0.2 per cent,” it said.

The revision was thanks to new data showing stronger growth in both industrial and residential building, it added.

Construction expanded 14.3 per cent in the June quarter instead of 0.9 per cent as earlier estimated.

Two successive quarters of negative growth are regarded as a technical recession. Singapore is seen as a bellwether for Asia’s leading economies because of its sensitivity to world trade.

“Technically, we averted a recession,” Song Seng Wun, a regional economist with CIMB Research, told AFP.

Jason Hughes, head of premium client management at IG Markets Singapore, described the data as “relatively good numbers for Singapore” and DBS Bank said it was maintaining its projection for the economy to grow by 1.8 per cent this year.

But DBS said further tightening measures on foreign workers -- a politically sensitive issue because of complaints from citizens that foreigners are taking away jobs -- could take the momentum off construction and other industries reliant on foreign labour.

The weak performance in the third quarter was largely due to a contraction in the manufacturing sector, a key pillar of the Singapore economy, as global demand for electronics goods declined.
“For the rest of the year, growth could be weighed down by the subdued global economic conditions,” the trade ministry said.

“Externally oriented sectors such as manufacturing and wholesale trade will be affected by the slowdown in advanced economies.”

Construction and transport engineering however are expected to be healthy, it added.

In a separate statement, the Monetary Authority of Singapore (MAS) maintained its policy of keeping a stronger local currency in a bid to contain inflation amid price pressures from a tight labour market.

The MAS, the country’s central bank, said there was no change to its policy band for the Singapore dollar.

It said that while Singapore’s export-oriented sectors bore the brunt of the downturn, construction and financial services were resilient.

“While there remains considerable uncertainty over the evolving fiscal situation in the US and eurozone, recent central bank policy initiatives worldwide have reduced the risk of a severe global recession,” MAS said.