Singapore economy slows sharply in Q2

SINGAPORE, (AFP): Singapore’s economy slowed sharply in the second quarter, hit mainly by a fall in key industrial production, government data showed Thursday.

The Ministry of Trade and Industry said second-quarter gross domestic product (GDP) grew an annual 0.5 percent compared with 9.3 percent in the previous quarter.

Last quarter’s growth came in below the average 1.1 percent forecast by economists in a Dow Jones Newswires poll.

The ministry said the manufacturing sector shrank 5.5 percent from a year ago, dragged down by an easing of demand for semiconductor chips and production falls in the biomedical sector.

Growth in construction also moderated as activities expanded an annual 1.6 percent compared with 2.4 percent in the previous quarter while the services-producing industries grew 3.3 percent from 7.6 percent.

Weaker trade flows and declines in wholesale and retail trade during the second quarter slowed down the services-related industries.

“The moderation in growth reflected a slowdown across many sectors,” the ministry said in a statement.

On a seasonally-adjusted annualised basis, Singapore’s GDP shrank 7.8 percent in the second quarter which was a sharp deterioration from the 27.2 percent growth seen in the first quarter.

Economists said the underlying growth trajectory remained intact for Singapore despite the sharp slowdown in business activities seen during the last quarter.

“My own view is that there is no overarching concern as yet,” Vishnu Varathan, a Singapore-based regional economist with Capital Economics consultancy, told AFP.

Varathan said steady growth in China and India was expected to provide an extra pillar of support for the city-state even as worries persist about the potential fallout from the eurozone debt crisis and weak US economy.

The US and Europe are key export markets for Singapore while regional giant China, and to a lesser extent, India, have in recent years been major trade stimulants for Asia.

“We are not looking for China and India to suffer a hard landing,” Varathan said in reference to efforts by Beijing and New Delhi to rein in inflationary pressures through interest rate increases.

“These two economies will cool nicely and that will translate into decent intra-regional support and there is not much that we can do about what is going on in the US and Europe.”Looking ahead, economists see a lesser chance of a further tightening of monetary policy by the Singapore central bank when the next policy review is up in October.

“Overall, with risk to economic growth rising and inflation having passed its peak and will likely ease going forward, (the) chance of further tightening of the exchange rate policy has reduced significantly,” DBS Bank economists said in a commentary.

Singapore relies on the exchange rate to conduct its monetary policy because economic growth is driven primarily by external trade.

The trade ministry’s second-quarter figures were computed mainly from data in the April-May period and it will release a more comprehensive picture of the economy in August.

Singapore’s economy is projected to grow 5.0-7.0 percent this year after a record 14.5 percent expansion in 2010.

The economy, valued at almost Sg$285 billion ($234 billion) in 2010, is highly dependent on trade which makes it vulnerable to any shifts in the global economy.