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Singapore’s 1Q2012 GDP Below Forecast

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by Ernie B. Calucag

Singapore’s economy grew 1.6 per cent year-on-year in the first quarter, unchanged from its earlier estimate, but lower than economists’ estimates that predicted an upward revision.

Economists had a consensus forecast of 1.8-per cent growth.

On a quarter-on-quarter basis, Singapore’s economy grew by 10 per cent, reversing the 2.5-per cent contraction in the previous quarter. The figure was slightly higher than the 9.9 percent reported in advance estimates released last month.

Singapore is maintaining its economic growth forecast for 2012 at one to three per cent, amid uncertainty in the global economy.

The Ministry of Trade and Industry (MTI) said the weaker-than-expected GDP growth was due to sequential contraction in wholesale and retail trade and the finance and insurance sectors.

The wholesale and retail sector contracted 2.3 per cent in the first quarter. This weak performance was mainly attributable to a decline in re-export volume, which negatively affected the wholesale trade segment.

The finance and insurance sector contracted for the second time by 3.4 per cent, due to the sluggishness in fund management activities.

Going forward, MTI added that Singapore’s economy remains vulnerable to downside risks, such as the still fragile US and eurozone economies.

“The US labour market remains sluggish with unemployment rate still at a high level. The eurozone economies will remain weak, as ongoing fiscal austerity and bank deleveraging continue to dampen domestic demand in the region. In Asia, growth will be curtailed by lacklustre export performances amidst the external headwinds,” it said in a statement.

In agreement, UOB economist Chow Penn Nee, who predicted a 1.8-per cent GDP growth, said risks of a disorderly debt default in the eurozone adds to the uncertainty of the growth outlook.

“Any upside risk to growth is predicated on a strong and convincing rebound in the electronics sector, which for now still looks patchy,” the economist added.

In addition, Chow noted that uncertainty in domestic economy could complicate further the Monetary Authority of Singapore’s (MAS) policy decision.

“The persistently high headline inflation stemming from elevated accommodation and private road transport costs could see MAS staying pat on its slightly steeper monetary policy stance. There could be a possibility of further tightening in October if high inflation continues to sustain. We have revised our CPI forecast to 4.0 per cent this year, above our earlier forecast of 3.5 per cent.”

Singapore’s Consumer Price Index rose by about 5.2 per cent year-on-year in March 2012, far exceeding February’s 4.6 per cent pace, on higher COEs for cars and higher market rent on houses.

Last month, the central bank surprised financial markets by saying it will tighten monetary policy slightly because of persistent inflationary pressures.

The central bank now expects CPI-All Items inflation to be 3.5-4.5 per cent for the year while core inflation (which excludes accommodation and private road transport) will likely be in the 2.5-3.0 per cent range, both up 1 percentage point from previous forecasts.