Monday, July 13, 2009

Singapore's Economy Stages Comeback in Second Quarter

HONG KONG - Singapore’s economy staged an unexpectedly vigorous comeback during the 2nd quarter of this year, prompting an official revision of the full-year growth forecasts — but one hedged with caveats that reflect the precarious nature of the global economy.

Singapore, like Hong Kong, is a small and open economy and an Asian financial hub that has been badly battered by the international financial and global turmoil that followed the collapse of Lehman Brothers last year.

On Tuesday, data released by the government showed Singapore’s economy grew at an annualized rate of 20.4% in the April-June period, much more than economists had projected, and a vast improvement over the double-digit declines recorded in previous quarters.

Compared to the same quarter last year, gross domestic product fell 3.7%, which was a less severe contraction than economists had forecast.

As a result, the government said it now expected the economy to shrink between 4 and 6 percent, rather than the contraction of up to 9% that it had previously forecast.

The data and less-grim forecast illustrate the mixed picture around the world as the global economy has, on the one hand, at least stopped worsening – but on the other has yet to show signs of a significant or sustained rebound.

In Australia on Tuesday, a key measure of business conditions jumped in June, reflecting that country’s ability to escape the global misery relatively well, thanks to determined government stimulus measures. Elsewhere, several major economies have recently reported improved output and business conditions data.

But many economists caution that much of this improvement is simply due to companies replenishing the inventories they ran down amid the turmoil of recent months — in which case, the improvement could be temporary and not reflect a sustained recovery in consumer demand.

Reflecting this uncertainty, Singapore’s Ministry of Trade and Industry on Tuesday accompanied its improved G.D.P. outlook with plenty of warnings.

The mild fall in manufacturing — down 1.5% from a year earlier, much less than the 24.3% plunge in the 1st quarter — stemmed from a “spike” in the “volatile” biomedical sector, and an improvement in the electronics sector “due to inventory restocking,” the ministry said in a statement on Tuesday. Both of these factors, it said, may not be sustained.

“Notwithstanding the improvement in the 2nd quarter, the outlook for the rest of the year remains largely unchanged — of a weak recovery susceptible to downside risks,” the ministry said.

Edward Teather, an economist at UBS in Singapore, said in a note on Tuesday that “Singapore’s G.D.P. figures can be volatile and some of the Q2 increase may well be reversed in Q3,” though he added that “based on our regional and global economic forecasts, we believe the underlying trend in the Singapore economy is one of improvement.”

“That the result was less dire than forecast is a plus,” echoed Patrick Bennett, an economist at Société Générale in Hong Kong.

But he warned: “There are plenty of challenges ahead for the Singapore economy, not the least being its exposure to developed economy demand. We've seen the impact of rebuilding of inventories during the last couple of months; we're less confident that demand will be sustained.”

Analysts will now look to a flurry of key economic data and corporate earnings from elsewhere for more indications of how the global economy is faring.

In the U.S., retail sales data for June, to be released later on Tuesday, are expected to show an improvement, while industrial output figures on Wednesday are projected to show a less pronounced fall than in May.

In Asia, 2nd-quarter growth figures from China, which are out on Thursday, are expected to show the economy may have expanded 7.5% as massive government spending programs and a surge in lending by state-controlled banks this year helped offset a plunge in exports.

Asian stock markets rose on Tuesday, recouping their broad declines during the previous session.

In Japan, the benchmark Nikkei 225 index was 2.2% higher. The Straits Times in Singapore and the S&/P/ASX 200 in Australia climbed 1.4% and 2.7%, respectively.

In Hong Kong, the Hang Seng Index was 2.2% higher around midday, and in mainland China, the Shanghai composite index gained 1.6%.

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