Singapore’s trade-reliant economy shrank less than anticipated in the second quarter but the government warned of continued uncertainties and downside risks.
The economy contracted 0.7 percent in the second quarter from the first on an annualised and seasonally-adjusted basis, not as bad as advance estimates in July that had indicated a contraction of 1.1 percent but still a surprise to economists, Reuters reports.
Weakness in trade-related services appeared to have offset an unexpected surge in pharmaceutical production in June.
On a year-on-year basis, the economy grew 2 percent in April-June, slightly better than advance estimates of 1.9 percent but again short of economists’ forecasts.
“There continue to be uncertainties and downside risks. Barring unforeseen shocks, MTI expects the Singapore economy to remain on track to grow by 1.5 to 2.5 percent in 2012,” the Ministry of Trade and Industry (MTI) said in a statement today.
The composite leading index declined by 2.1 percent on a quarter-on-quarter basis, reversing the increase of 2.9 percent in the preceding period, it said.
MTI added that tourism had also begun to slow amid the economic uncertainty.
“The growth in visitor arrivals also moderated in recent months… On a quarter-on-quarter basis, the [accommodation and food services] sector declined by an annualised rate of 5.8 percent,” the ministry said.
Economists surveyed by Reuters had a median forecast of second-quarter growth of 0.6 percent quarter-on-quarter and 2.3 percent year-on-year.
“With this weaker than expected sequential contraction in [Singapore] GDP, and soft external demand in the region, we think that the chance of a technical recession, though modest, is certainly there,” Robert Prior-Wandesforde, an economist at Credit Suisse, said in a research note.
“We think the focus of the central bank is likely to be shifting slightly more towards growth from inflation, and therefore the MAS could ease the band at least slightly come October,” he added, referring to Singapore’s monetary policy of letting its currency move in an undisclosed band against a basket of currencies of its main trading partners.
Prime minister Lee Hsien Loong revealed the new full-year growth forecast of 1.5-2.5 percent in his National Day speech on Wednesday, from an earlier range of 1-3 percent.
The new forecast range “imputes some chance of technical recession”, Citigroup economist Kit Wei Zheng said.
According to detailed GDP data for the second quarter, Singapore’s manufacturing contracted 0.5 percent on an annualised and seasonally adjusted quarter-on-quarter basis, a marked improvement from the advance estimate that showed a 6.0 percent decline. But services shrank 0.6 percent, contrary to advance estimates that showed an annualised 0.4 percent quarter-on-quarter growth in the April-June period from January-March.
The financial and insurance sector managed to turn around, however, growing 2.1 percent at an annualised and seasonally rate in the second quarter following two quarters of contraction.
At a briefing, central bank officials reiterated earlier forecasts that inflation is expected to ease in the second half, with the core inflation measure likely to come down to near 2 percent by end of the year. The core inflation measure, which excludes prices of cars and accommodation as these are influenced more by government measures, is the closely watched figure for monetary policy.
But officials also said unemployment will remain low at 2-3 percent, indicating there is little pressure to stimulate growth.