Singapore’s economy unexpectedly contracted 1.1 per cent in the second quarter compared with the previous three months, underscoring the vulnerability of Asia’s 10th largest economy to weakness in the eurozone and a faltering US recovery.
The ministry of trade and industry said the slowdown compared with a 9.4 per cent expansion in the first quarter. Manufacturing was worst hit, shrinking 6 per cent on a decline in biomedical output, compared with a 21 per cent expansion in the first quarter.
However on a year-on-year basis, the economy continued to grow at a “modest” pace of 1.9 per cent, following 1.4 per cent growth in the previous quarter.
“The figures will disappoint as most traders were expecting a slightly higher rate of expansion,” said Justin Harper, market strategist at IG Markets in Singapore.
However he said there was “no need to press the panic button, yet” as 1.9 per cent year-on-year growth was still healthy given the backdrop of the “sluggish global economy and a eurozone crisis still alive and kicking”.
Barclays said the figures, coupled with “heightened external uncertainties”, meant that its forecast of full-year gross domestic product growth of 3.3 per cent faced “downside risks”.
Singapore relies on manufacturing – mainly pharmaceuticals, electronics, aerospace, oil rig construction and petrochemicals – for about 27 per cent of its output.
A recent push to diversify has seen the city-state build up a biomedical sector. Most of the fall in manufacturing output was due to weakness there, the trade ministry said.
Joey Chew, a Barclays analyst, said: “Biomedical output has its own cycles, it’s dependent on company decisions that are not necessarily linked to global confidence. If you strip that [biomedical] out we actually get growth of 1.2-1.4 per cent in [overall] growth.”
The construction sector grew 5.1 per cent on a year-on-year basis, compared with 6.9 per cent in the previous quarter.
Singapore’s Straits Times index was fractionally higher at 2,975.9 by mid-morning.-By Jeremy Grant