Singapore. Singapore’s trade-dependent economy shrank 1.1 percent in the second quarter on an annualized and seasonally adjusted basis, reversing a strong January-March performance in another sign that weakness in Western countries has begun to affect Asia.
The wealthy Southeast Asian city-state, a major financial and business center whose trade is more than three times its gross domestic product, is regarded as a leading indicator for Asia because of its open economy.
The surprise contraction in Singapore’s GDP prompted at least three banks to cut their full-year forecast and signaled the central bank may ease monetary policy when it issues its next half yearly policy statement in October.
“We are downgrading our Singapore GDP growth forecast to 1.9 percent in 2012 and 3 percent in 2013,” said Bank of America Merrill Lynch economist Chua Hak Bin.
“The risk of a technical recession has increased… [and] MAS may ease back to a modest and gradual Singapore dollar appreciation at the October policy meeting from the current slightly steeper stance,” he added.
Merrill had previously predicted Singapore’s GDP would expand by 2.5 percent this year and 3.3 percent in 2013.
Citigroup cut its 2012 GDP growth outlook to 2.6 percent from 3.6 percent, lowering it to within the official 1-3 percent forecast, while Oversea-Chinese Banking Corp (OCBC) reduced its forecast to 2.3 percent from 2.7 percent.
United Overseas Bank economist Chow Penn Nee said the disappointing advance economic data did not bode well for China and the rest of Asia as Singapore is usually the first in the region to feel the impact of a weakening global environment.
China, which also reported GDP data on Friday, said its economy grew 7.6 percent in the April-June quarter from a year earlier, the slowest pace since the first quarter of 2009 although it was in line with market expectations.
The Chinese and Singapore GDP estimates come a day after the Asian Development Bank (ADB) cut its growth forecasts for developing Asia, citing financial and economic problems in Europe and the United States that had cut demand for exports.
Singapore’s Ministry of Trade and Industry said the city-state’s GDP shrank in the second quarter due to a 6 percent quarter-on-quarter contraction in manufacturing, which was in turn the result of a drop in biomedical production.
The ministry also revised the expansion in the first three months of 2012, trimming it to 9.4 percent on a seasonally adjusted and annualized basis from the growth of 10 percent it previously reported.
Singapore’s services sector grew 0.4 percent in the second quarter from the first three months of the year at an annualized and seasonally adjusted pace, as growth in tourism offset a contraction in trade and financial services.
Economists said that contraction in trade and financial services pointed to weakness across the region. In contrast, Singapore’s pharmaceutical industry tends to be highly choppy.
Economists surveyed by Reuters had given a consensus forecast of second-quarter growth of 0.3 percent quarter-on-quarter and 2.4 percent year-on-year.
Singapore manages monetary policy by allowing its dollar to rise or fall against a basket of currencies. In April, the Monetary Authority of Singapore raised its inflation forecast and said it will let the local dollar appreciate at a slightly faster pace.
Singapore’s inflation, while high by historical standards, slowed to 5.0 percent year-on-year in May from 5.4 percent in April as authorities cited moderating price pressures from wages and other business costs.
“Inflation appears to be stabilizing and downside growth risks may be renewing. If a technical recession does materialize, expect market speculation of a monetary policy easing in October to gain some traction,” OCBC’s head of treasury research Selena Ling said.