Singapore growth booms despite weak electronics
Saturday, 21 July 2007
John Jannarone
Singapore's unexpectedly fast economic expansion in the second quarter shows that this small Southeast Asian nation can flourish even when growth in a traditional mainstay, electronics manufacturing, is weak.
On a seasonally adjusted and annualized basis, Singapore's gross domestic product surged 12.8% in the second quarter from the first -- its fastest pace in two years -- thanks to robust pharmaceutical and oil-rig manufacturing and an extra kick from construction. The surge surprised analysts, who had predicted a rise of about 7.8%.
Other electronics-heavy economies in Asia, such as Taiwan and Malaysia, have been hurt by the recent industry slowdown, but Singapore's resilience highlights backup engines that have helped it weather the cycle so far.
Second-quarter GDP rose 8.2% year over year -- analysts had expected 6.7% -- while first-quarter growth was revised upward to 8.5% from a year earlier, from 7.6%, the Ministry of Trade and Industry said.
The new figures were "stunning," Chua Hak Bin,, economist at Citigroup in Singapore said in a note to clients.
Yesterday's data run counter to predictions that Singapore's economy will slow this year and are likely to prompt the government to raise its full-year estimate.
The country's GDP grew 7.9% last year, and the government's current forecast is in the 5%-7% range. "We'll all have to raise our forecasts," said HSBC economist Robert Prior-Wandesforde. Mr. Prior-Wandesforde said he now expects full-year growth of 8%, up from 6.3% previously.
He added that the economy's rapid expansion is especially surprising in view of continuing weakness in the city-state's electronics industry.
"The key message is just how well the Singapore economy can perform while the electronics sector is firmly in the doldrums," he said.
The figures released yesterday gave only broad-brush outlines to how various sectors are performing. Manufacturing output in the second quarter rose 10.2% from a year earlier, compared with 4.4% growth in the first quarter.
The service sector, which makes up more than half of Singapore's economy, grew 7% from a year earlier, slowing slightly from 7.2% in the January-March period. Adding an extra boost to GDP in the latest quarter was Singapore's sizzling construction sector, which expanded 17.9% from a year earlier, the fastest pace since 1997.
But within manufacturing, other recent data have showed the weakness in the electronics industry. In the first five months of the year, Singapore's electronics manufacturing grew just 3.2% from the same period of 2006.
Helping spark construction activity has been an influx of immigrants, which has boosted demand for office and residential property, and two casino-resorts that will open in coming years. Surging land prices have also prompted a proliferation of "en bloc" sales, in which developers buy out entire condominium buildings, knock down older high-rises and put up bigger structures. Still, the construction sector represents only about 3% of the economy.
Singapore's government-led diversification efforts have kept the economy afloat, but even domestic demand can dry up quickly in open economies that are exposed to external currents. Matthew Hildebrandt, an economist at J.P. Morgan, cautioned that if the world's major economies slow later this year, Singapore could suffer.
"If exports turn out to be more sluggish than expected, the impact could spill over into the domestic economy," he said.
The Singapore dollar strengthened in response to the GDP figures. The U.S. dollar fell to S$1.5170 just after the release from S$1.5198 late Monday. At the Singapore Exchange, the benchmark Straits Times Index hit an all-time intraday high of 3653.27 during morning trade. It closed at 3620.32, down 0.2%.
The growth figures are unlikely to prompt tighter monetary policy, as the currency is believed to have room to appreciate within the confines of the central bank's secret trading band.
The Monetary Authority of Singapore uses the exchange rate as its chief policy tool, and advocates a modest and gradual appreciation of the currency.
The government will release final GDP data for the second quarter in about six weeks. Revised figures generally don't vary significantly from the advance estimates, which are largely based on the first two months of the quarter.
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Singapore's unexpectedly fast economic expansion in the second quarter shows that this small Southeast Asian nation can flourish even when growth in a traditional mainstay, electronics manufacturing, is weak.
On a seasonally adjusted and annualized basis, Singapore's gross domestic product surged 12.8% in the second quarter from the first -- its fastest pace in two years -- thanks to robust pharmaceutical and oil-rig manufacturing and an extra kick from construction. The surge surprised analysts, who had predicted a rise of about 7.8%.
Other electronics-heavy economies in Asia, such as Taiwan and Malaysia, have been hurt by the recent industry slowdown, but Singapore's resilience highlights backup engines that have helped it weather the cycle so far.
Second-quarter GDP rose 8.2% year over year -- analysts had expected 6.7% -- while first-quarter growth was revised upward to 8.5% from a year earlier, from 7.6%, the Ministry of Trade and Industry said.
The new figures were "stunning," Chua Hak Bin,, economist at Citigroup in Singapore said in a note to clients.
Yesterday's data run counter to predictions that Singapore's economy will slow this year and are likely to prompt the government to raise its full-year estimate.
The country's GDP grew 7.9% last year, and the government's current forecast is in the 5%-7% range. "We'll all have to raise our forecasts," said HSBC economist Robert Prior-Wandesforde. Mr. Prior-Wandesforde said he now expects full-year growth of 8%, up from 6.3% previously.
He added that the economy's rapid expansion is especially surprising in view of continuing weakness in the city-state's electronics industry.
"The key message is just how well the Singapore economy can perform while the electronics sector is firmly in the doldrums," he said.
The figures released yesterday gave only broad-brush outlines to how various sectors are performing. Manufacturing output in the second quarter rose 10.2% from a year earlier, compared with 4.4% growth in the first quarter.
The service sector, which makes up more than half of Singapore's economy, grew 7% from a year earlier, slowing slightly from 7.2% in the January-March period. Adding an extra boost to GDP in the latest quarter was Singapore's sizzling construction sector, which expanded 17.9% from a year earlier, the fastest pace since 1997.
But within manufacturing, other recent data have showed the weakness in the electronics industry. In the first five months of the year, Singapore's electronics manufacturing grew just 3.2% from the same period of 2006.
Helping spark construction activity has been an influx of immigrants, which has boosted demand for office and residential property, and two casino-resorts that will open in coming years. Surging land prices have also prompted a proliferation of "en bloc" sales, in which developers buy out entire condominium buildings, knock down older high-rises and put up bigger structures. Still, the construction sector represents only about 3% of the economy.
Singapore's government-led diversification efforts have kept the economy afloat, but even domestic demand can dry up quickly in open economies that are exposed to external currents. Matthew Hildebrandt, an economist at J.P. Morgan, cautioned that if the world's major economies slow later this year, Singapore could suffer.
"If exports turn out to be more sluggish than expected, the impact could spill over into the domestic economy," he said.
The Singapore dollar strengthened in response to the GDP figures. The U.S. dollar fell to S$1.5170 just after the release from S$1.5198 late Monday. At the Singapore Exchange, the benchmark Straits Times Index hit an all-time intraday high of 3653.27 during morning trade. It closed at 3620.32, down 0.2%.
The growth figures are unlikely to prompt tighter monetary policy, as the currency is believed to have room to appreciate within the confines of the central bank's secret trading band.
The Monetary Authority of Singapore uses the exchange rate as its chief policy tool, and advocates a modest and gradual appreciation of the currency.
The government will release final GDP data for the second quarter in about six weeks. Revised figures generally don't vary significantly from the advance estimates, which are largely based on the first two months of the quarter.
......................
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