Singapore Raises GDP Forecast as Recession Recedes

By Shamim Adam

July 14 (Bloomberg) -- Singapore’s government raised its economic forecast for 2009 as gains in construction and pharmaceutical output lifted the nation from its deepest recession since independence in 1965.

Gross domestic product will shrink 4 percent to 6 percent this year, less than an earlier forecast for a contraction of as much as 9 percent, the trade ministry said in a statement today. The economy expanded an annualized 20.4 percent last quarter from the previous three months, the first growth in a year.

“The Singapore economy is back, and back with a vengeance,” said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. “We think other drivers of growth will come through as the year progresses, ensuring that, although bumpy, the recovery is likely to be sustained.”

Singapore stocks advanced after the report, led by the country’s biggest developer, Capitaland Ltd., on optimism a combination of tax cuts and record government spending will support the recovery. South Korea and Japan have said their economic outlook is improving and the International Monetary Fund raised its growth forecast for emerging Asia last week.

The Singapore dollar rose 0.4 percent to S$1.4605 against the U.S. currency as at 11:04 a.m. local time. The benchmark stock index climbed 1.3 percent.

“Across Asia, things are not going to be as bad as what everyone thought at the beginning of the year,” said Song Seng- Wun, regional economist at CIMB-GK Securities Pte in Singapore. “For export-oriented Asian economies, the drag from the manufacturing sector is going to be less than forecast.”

Stimulus Plans

Governments worldwide have pledged about $2 trillion in stimulus to counter the global recession, helping stabilize sales by Asian companies including Japan’s Nissan Motor Co. and Singapore’s Frasers Centrepoint Homes.

South Korea last month raised its GDP estimate for 2009 and 2010, saying fiscal stimulus and interest-rate cuts stoked consumer confidence. Goldman Sachs Group Inc., Morgan Stanley and the World Bank have raised forecasts for China in the past month. China will release GDP data on July 16.

The revised 2009 GDP prediction “reflects the less severe contraction in the first half of the year, while the underlying economic conditions remain weak,” Singapore’s trade ministry said. The expansion last quarter was better than the median estimate for a 13.4 percent gain in a Bloomberg survey.

Singapore’s $161 billion economy contracted 3.7 percent last quarter from a year earlier, better than the median estimate for a 5.4 percent decline in a Bloomberg survey.

Bouncing Back

Manufacturing, which accounts for a quarter of the economy, fell 1.5 percent from a year earlier, after sliding a revised 24.3 percent in the three months ended March.

“Asia is bouncing back in a V-shaped fashion,” said David Carbon, head of economic and currency research at DBS Group Holdings Ltd. in Singapore. “Industrial production is 65 percent back to pre-crisis levels and exports have recovered about one-third of their lost territory.”

India’s industrial production increased at the fastest pace in eight months in May, while Malaysia’s declined the least in six months.

The Japanese government said yesterday the economy is “picking up,” and upgraded its view of exports and consumer spending. Australia’s business sentiment turned positive in June for the first time since December 2007.

‘Peter Out’

The better growth forecast for emerging Asia “owes to improved prospects in China and India, in part reflecting substantial macroeconomic stimulus and a faster-than-expected turnaround in capital flows,” the IMF said July 8. “However, the recent acceleration in growth is likely to peter out unless there is a recovery in advanced economies.”

The “volatile” pharmaceutical industry and electronics inventory restocking led to the improvement in Singapore’s manufacturing output, the trade ministry said. That may not be sustained as rising unemployment and reduced household spending in the U.S. and Europe suggest there isn’t evidence yet of a “decisive improvement” in demand, it said.

Singapore’s services industry declined 5.1 percent last quarter, after shrinking by a similar pace in the first three months of the year. The construction industry gained 18.3 percent last quarter as Las Vegas Sands Corp. and other developers worked to complete hotels and office towers.

Declines in Singapore’s home prices have slowed and companies such as Frasers Centrepoint Homes plan to start selling homes from new developments in the next six months. The unit of Fraser & Neave Ltd. said it sold 90 percent of a 330- unit condominium project in central Singapore within three days of starting sales on June 20.

“Singapore’s recovery will be more pronounced than others in the region because pharmaceuticals swung the industrial production numbers a lot more than it did in other countries,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “We’ll really be getting ahead of ourselves to say the recession is in the rear-view mirror.”

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net