Singapore's economy contracts by 0.7% on-quarter in Q2 2012

By Linette Lim, Channel NewsAsia, 10 Aug 2012

Singapore's economy shrank 0.7% in the second quarter, compared with the three months before.

This is a slightly better showing than the 1.1% originally estimated, said the Ministry of Trade and Industry (MTI) on Friday morning.

Compared to a year ago, the economy grew 2%.

MTI also said Singapore's growth outlook remains cautious in the second half of the year. 

It expects global economic conditions to remain subdued, as consumer spending in advanced countries will be dampened by weak labour market conditions.

But the ministry said a technical recession in Singapore - defined as two consecutive quarters of negative GDP growth - is unlikely, adding that the economy is on track to achieve a growth of 1.5% to 2.5% this year.

Commenting on the on-quarter contraction in the second quarter, MTI's Permanent Secretary Ow Foong Pheng said: "The pullback was largely due to the decline in externally-oriented sectors such as wholesale trade, tourism-related services, as well as electronics manufacturing."

Most analysts expect economic momentum to pick up later in the year.

Barclays director of research, Leong Wai Ho, said: "One key theme for the second half of this year is the resurgence of the technology cycle, which is still something we expect in the later half of this year - maybe a little postponed, towards Q4 rather than Q3.

"So once that starts to pick up in North Asia, it should start to drive tech activity, tech production, tech exports from this part of the world, which will mean that Southeast Asian economies like Singapore would also benefit."

Singapore's small and open economy has been affected by weak growth in advanced economies.

Asian tourist arrivals, which had provided strong support to the Singapore economy in the past few years, has been moderating.

Vincent Conti, economist (emerging Asia) at ANZ, said: "We believe that Singapore can still achieve decent growth, depending on how the US and China's economic performance bear out.

"At this point, we're still expecting an investment-led rebound in China and that's being driven by the policy stimulus, especially on the monetary side that the authorities have been putting in place."

Economists say inflation in Singapore is likely to drop to 4% for the full year, from 5.3% in the second quarter.

This is expected to give the Monetary Authority of Singapore (MAS) more room to ease policy if growth in the coming months comes in weaker than anticipated.

Credit Suisse thinks that the MAS could ease the trading band for the Sing dollar at its next policy meeting in October.

But, the central bank says its current policy stance of modest and gradual appreciation of the Sing dollar remains appropriate for now.