Strong growth suggests Singapore emerging from recession

Source : Channel NewsAsia – 14 Jul 2009

Singapore said Tuesday its economy grew for the first time in a year in the second quarter, led by biomedicals and electronics, suggesting the city was emerging from its worst ever recession.

The economy soared 20.4 per cent in the three months to June compared with the first quarter on a seasonally adjusted annualised basis, the Ministry of Trade and Industry said, while raising its forecast for 2009.

A Dow Jones Newswires poll of 10 analysts had tipped an average 14.1 per cent economic expansion.

Gross domestic product (GDP) was now expected to contract 4-6 per cent for the year from an earlier projection of 6-9 per cent, the ministry said, while warning that any recovery would be weak due to the fragile global economy.

It was the first quarter-on-quarter growth in five quarters.

Trade-driven Singapore became the first Asian economy to slip into a recession in the second half of last year after a financial and economic crisis that started in the United States hit demand for its exports.

Tuesday’s data means Singapore is the first of the Asian countries hit by recession to release statistics pointing to a recovery.

Compared with the previous year, however, output in the June quarter was down 3.7 per cent, indicating that the economy remained weak.

“I guess technically the recession would have ended, the economy is growing again,” said David Cohen, an economist with research house Action Economics.

“Growth won’t be very strong but it should remain in an upward trajectory,” he told AFP.

“The Singapore economy registered a stunning turnaround in the second quarter, much in line with our expectation,” DBS Group said in a research note.

Despite the quarter-on-quarter growth, the trade ministry cautioned that “the outlook for the rest of the year remains largely unchanged: of a weak recovery susceptible to downside risks.”

“At this juncture, there is no evidence yet of a decisive improvement in final demand,” the ministry said in a statement, adding the second quarter surge “may not be sustained.”

The services sector, which accounts for two-thirds of the economy, continued to shrink with a decline of 5.1 per cent in the June quarter from a year ago, the ministry said.

It noted that rising unemployment and reduced consumer spending in Singapore’s major export markets like the United States and Europe reflected the continued weakness in the global economy.

Action Economics’ Cohen said however he was cheered by the second quarter numbers.

“I think this will be the first in a series of upbeat GDP reports for the second quarter from Asian economies,” he said, noting that China and South Korea would also be announcing their growth data in the next two weeks.

“Maybe this will provide some reassurance to the markets which have been jittery in the last few weeks about the sustainability of the recovery. It shows that Asian economies have turned the corner in the second quarter.”

Dariusz Kowalczyk, chief investment strategist with SJS Markets trading house, said the June quarter data suggested Singapore may not have been as hit hard by the global recession as initially thought.

“Production and exports account for such a large proportion of the Singapore economy that global trends will determine whether it grows or contracts but I am upbeat on the global economy so this bodes well for Singapore,” he said.

He added that he has revised the city-state’s 2009 growth outlook to a contraction of 4.3 per cent from 5.9 per cent previously forecast.

The June quarter figures are computed mainly from the April-May period and the ministry is expected to release a more detailed picture in the next few weeks.