The Merlion Roars Back!

Positive territory. The Singapore economy has bounced back with a vengeance.

The Straits Times today has this great news. The little dot in the South China Sea is sparking fresh economic life again after a long wave of recessionary pressure.

Singapore roared out of recession with a growth of 20.4 per cent in the second quarter over the previous quarter, marking the first expansion in a year and prompting the government to raise its 2009 growth forecast.

The flash estimates, which are based mainly on April and May numbers, showed growth in the construction sector and a sharp improvement in manufacturing, mostly contributed by the drugs cluster.

“The Singapore economy is back, and back with a vengeance,” said HSBC economist Robert Prior-Wandesforde, who expects other regional economies to produce similar rallies.

The Singapore government also revised its 2009 growth forecast upwards after three downgrades.

The Ministry of Trade and Industry (MTI) now expects the economy to contract by 4 to 6 per cent instead of the 6 to 9 per cent decline predicted in April, thanks to the “less severe contraction” in the first half of the year.

However, it is sticking to its outlook for the rest of the year — a weak recovery that will be at risk from more bad news.

The flash estimates were clearly the headline grabber yesterday (July 15, 2009). They showed that the economy surged 20.4 per cent compared with the first quarter — a far better figure than the experts had tipped and the first positive quarter after four consecutive quarters of contraction.

However, the economy was still down 3.7 per cent compared with the same period last year, its third straight year-on-year period of slump but again better then market expectations.

The brighter figures also mean Singapore is the first Asian economy out of a technical recession, defined as at least two consecutive quarters of contraction.

Yesterday's avalanche of numbers also sparked more optimism of a second quarter recovery across Asia, as Singapore is the first key economy in the region to report second quarter growth numbers.

Will this positivism spill over the Causeway?