Singapore Economy Probably Contracted as Factories Hurt by Global Slowdown

By Shamim Adam and Sarina Yoo - Dec 30, 2011 10:00 AM GMT+0700

Singapore’s economy probably contracted in the fourth quarter as manufacturing slumped, increasing pressure on the island’s policy makers to stimulate growth even as inflation accelerates.

Gross domestic product (SGDYTY) probably dropped an annualized 5 percent in the three months through December from the previous quarter, when it rose 1.9 percent, according to the median (SGAVYOY) of 11 estimates in a Bloomberg News survey. The report is scheduled for release at 8 a.m. on Jan. 3.

Singapore forecasts economic expansion will moderate next year as a faltering global recovery weighs on demand for goods and services. The island’s exports have dropped even after the central bank, which uses the local dollar to manage inflation, moved in October to slow gains in the currency, which has retreated 4.5 percent against the dollar in the past two months.

“Singapore is one of Asia’s most vulnerable economies to a slowdown in global growth,” said Sukhy Ubhi, an economist at Capital Economics Ltd. in London. “The upshot is we think that the Monetary Authority will loosen its policy settings at its next biannual review in April.”

Other Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European debt crisis. Taiwan’s central bank yesterday left borrowing costs unchanged for a second straight quarter after boosting its benchmark earlier in the year to damp inflation.

2012 Outlook

China’s manufacturing contracted for a second month in December as global growth faltered and Premier Wen Jiabao prolonged a crackdown on speculation in the housing market, according to an index released by HSBC Holdings Plc and Markit Economics today.

Still, Asian stocks climbed in the last trading day of 2011 after rising U.S. home sales signaled the world’s largest economy is weathering Europe’s turmoil. The MSCI Asia Pacific Index trimmed its biggest yearly decline since 2008, adding 0.2 percent as of 11:42 a.m. in Tokyo. The measure is set for an 18 percent drop this year.

Prime Minister Lee Hsien Loong may give some economic estimates in his annual New Year message tomorrow. The government expects GDP to expand about 5 percent in 2011 and predicts growth will slow to 1 percent to 3 percent in 2012.

The island’s inflation (SICPIYOY) was 5.7 percent in November, matching the fastest pace since 2008. The Monetary Authority of Singapore has joined most other Asian policy makers who have allowed their currencies to depreciate this year to defend exports even as the step boosts inflation risk by making imported goods more costly.

The Singapore dollar weakened about 5.5 percent in the second half of 2011. The Indian rupee lost about 16 percent in the same period, the biggest decliner in Asia, followed by the South Korean won.

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, is among the first countries in the region to report fourth-quarter data. GDP advanced 4.3 percent on a year-on-year basis, according to the median estimate of 13 economists surveyed by Bloomberg News.

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

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net