(Bloomberg) -- Singapore’s economy is recovering after contracting 6.5 percent in the first half of 2009 from a year earlier, Prime Minister Lee Hsien Loong said. “We are now in a stronger position,” Lee said in a televised National Day message yesterday. The decline in the first six months was “less bad than we had feared” after an easing in the global recession and government measures helped Singapore’s economy “bounce back” last quarter, he said.
Governments worldwide have pledged about $2 trillion in stimulus to counter the worst global slowdown since the Great Depression, helping stabilize sales by Asian companies including Japan’s Nissan Motor Co. and Singapore’s Frasers Centrepoint Ltd. Asian nations from China to Malaysia have reported smaller declines in exports as the slump in demand eases. Singapore’s gross domestic product will shrink between 4 percent and 6 percent in 2009, Lee said yesterday, reiterating a July forecast that the contraction will be less than an earlier prediction of as much as 9 percent.
The government has said the recent improvement in drugs and electronics output that boosted manufacturing in the second quarter may falter, preventing a quick recovery from the country’s deepest recession since independence in 1965. “The global economic situation has somewhat stabilized,” Lee said yesterday. “But it is too early to celebrate. The outlook remains clouded. Our exports remain much lower than last year, and companies like Singapore Airlines Ltd. are still facing very tough conditions.”
Second-Quarter GDP
Singapore’s economy grew an annualized 20.4 percent in the second quarter from the previous three months, the first expansion in a year, according to initial government estimates released on July 14. The trade ministry will release an updated GDP figure at 8 a.m. on Aug. 11. Economists surveyed by Bloomberg News forecast an annualized 19.2 percent expansion in the second quarter, less than the government’s initial estimate.
A first-half contraction of 6.5 percent suggests the economy shrank 3.4 percent in the second quarter from a year earlier, assuming first-quarter GDP shrank 9.6 percent as reported earlier, according to Alvin Liew, an economist at Standard Chartered Bank in Singapore. That compares with the 4 percent decline predicted by economists in a Bloomberg survey. “We expected a poorer number because manufacturing didn’t perform all that well,” Liew said. Singapore’s industrial production fell for the first time in three months in June as electronics output dropped and a surge in pharmaceuticals manufacturing eased. The government’s initial second-quarter GDP estimate was made before the June manufacturing data.
New Strategies
Singapore has said it is seeking new strategies to help the city state grow faster than other advanced economies. Lee announced the formation of the Economic Strategies Committee in May, which will announce its key recommendations in January. “The committee will examine how Singapore can find new opportunities, build new capabilities, sustain balanced growth and overcome our constraints,” Lee said. “We can and must look for new ways to develop and prosper. Opportunities still exist, especially in Asia.”
Singapore is likely to retain its export-led growth model even as it looks for new areas of growth because of impediments to boosting domestic demand, Morgan Stanley economists Deyi Tan, Chetan Ahya and Shweta Singh wrote in a July 30 report.
Consumer Demand
“The personal disposable-income ratio as a percentage of GDP is comparatively low, possibly due to continued policy efforts to keep labor costs competitive and forced pension savings,” they said. “This puts a natural cap to how big the Singapore consumer can grow.”Singapore’s services industries have shrunk for three straight quarters. Exports have dropped for 14 consecutive months. Visitor arrivals to the island have also slumped as the global slowdown curbs business and holiday travel.
The government’s efforts to prevent job losses include handing out cash to companies to lower wage costs. That hasn’t stopped the economy from losing 18,600 jobs in the first half. “We might see another wave of retrenchments later in the year,” Lee said. “We must stay on guard for more challenges to come.” The island celebrates its 44th year of independence today.
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