by Donavan Lim, Ernie Calucag
Singapore’s economy contracted in the second quarter this year as Europe’s debt crisis took its toll on the country’s economy.
Gross domestic product fell an annualised 1.1 per cent in the three months through June from the preceding quarter, when it surged a revised 9.4 percent, the Ministry of Trade and Industry (MTI) said Friday.
On a year-on-year basis, the economy grew 1.9 per cent, following the 1.4 per cent growth in the previous quarter.
The 2Q2012 figures came in weaker-than-expected against market expectations of 2.3 per cent growth year-on-year, and 1 per cent growth quarter-on-quarter.
The slowing growth momentum in the second quarter was mainly attributed to a sequential contraction in the manufacturing sector, which fell by 6.0 per cent, reversing the 20.9 per cent expansion in the preceding quarter, stated MTI.
Specifically, the fall in manufacturing output was due to a decline in biomedical manufacturing output, which offset gains in the transport engineering cluster.
Manufacturing accounts for about a quarter of Singapore’s GDP.
Elsewhere, the construction sector managed to chalk up gains of 5.1 per cent on a year-on-year basis as compared with 6.9 per cent. Sequentially, the industry grew 0.3 per cent.
At the same time, the service sector managed to grow modestly at 1.0 percent on a year-on-year basis, down from 1.9 per cent last quarter. This was mainly due to contraction in the wholesale and retail trade, as well as the finance and insurance sectors.
With the surprise contraction, economists said weaker global business and consumer sentiment is now hitting trade-dependent economies such as Singapore.
“2Q2012’s disappointing data does not bode well for Singapore and the rest of trade-dependent Asian economies, which points to the continued gloomy external outlook, and decline in trade,” said UOB economist Chow Penn Nee.
Going forward, Chow noted that if services and manufacturing sectors continue to weaken, Singapore risks entering a technical recession in the third quarter.
“But even if we enter a technical recession, it’s likely to be short and shallow,” the UOB economist argued, adding that UOB is maintaining full year GDP growth at 2.5 per cent.
Justin Harper of IG Markets in Singapore holds a different view however. He noted that there is no need to press the panic button yet, as Singapore economy remains healthy given the backdrop of the sluggish global economy and the eurozone crisis.
“The economy shrank 1.1 per cent but this is a slightly unfair comparison as 1Q2012 was a very different picture to 2Q2012, when optimism, manufacturing and orders were much higher as traders expected the US economy to spark a global recovery,” he said.
“The Singapore economy has been pretty resilient weathering the storm coming in from the eurozone by diversifying across a range of sectors including oil and gas, pharmaceuticals and electronics.”
On monetary policy, UOB’s Chow said the Monetary Authority of Singapore will likely keep its current gradual appreciation stance as the government sticks to its 1-3 per cent growth range this year.
“But the risks are biased towards looser monetary policy, in line with the easing bias we see in Asia currently,” Chow noted.
The MTI will release the preliminary GDP estimates for the second quarter in August 2012, including performance by sectors, sources of growth, inflation, employment and productivity, in the Economic Survey of Singapore.