Singapore: A More Painful Punch, A More Shaky Recovery

This report from Reuters is very disturbing (4 January 2010).

According to the report,Singapore’s economy shrank a bigger-than-expected 6.8 per cent on a seasonally adjusted and annualised basis in the fourth quarter, raising expectations the central bank may not start tightening policy until later in the year.

Economists have been expecting the central bank to shift towards tighter policy at its next meeting in April by allowing a gradual appreciation of the Singapore dollar, but a shaky recovery from recession could mean policy will be on hold.

“The numbers are still patchy, which is a reminder to policymakers that it is not going to be plain sailing... Monetary policy may still have to be maintained until we see signs of a stronger pickup,” said an economist at CIMB in Singapore.

Analysts in a Reuters poll had predicted gross domestic product to fall 0.8 per cent in the December quarter after rising 14.9 per cent in the previous quarter.

The Singapore dollar, the central bank’s main policy tool, traded at 1.4042/56 per US dollar by 8.49am, slightly weaker compared to levels of 1.4020/50 just before the economic data was released.

GDP in the October-December period grew 3.5 per cent from a year earlier, the second quarterly growth after three quarters of annual contraction. Growth was smaller than expected as manufacturing weakened, the advance data showed.

On a seasonally adjusted and annualised basis, manufacturing shrank 38.4 per cent from the previous quarter, while construction grew 4.3 per cent and service industries expanded 7.2 per cent.

“What is very encouraging in the fourth quarter data is the sharp turnaround in services. This basically bodes well for our outlook for Singapore this year,” said the Treasury Research Division at OCBC in Singapore.

GDP fell 2.1 per cent in 2009, largely in line with economists’ forecasts. The government expects growth for this year of 3 to 5 per cent.

Being resilient and more hands-on, I believe Singapore can weather the tempest better than most economies. Let us see how they will spin magic on this one.