Singapore Economy Expands 26% on Tourism, Services Jump
Singapore’s growth accelerated to a record 18.1 percent pace in the first half of 2010, spurring the currency and putting the island on course to overtake China as Asia’s fastest-growing economy this year.
Gross domestic product expanded at a 26 percent annualized pace in the second quarter from the previous three months, after a revised 45.9 percent gain in January to March, the trade ministry said today. Growth in the first half was the fastest since records began in 1975, prompting the government to predict GDP will rise 13 percent to 15 percent in 2010.
A year after Singapore exited its worst recession since independence in 1965, tourists are arriving in record numbers and companies including Standard Chartered Plc are boosting hiring. The expansion is part of a rebound across Asia that has prompted South Korea, Malaysia, Taiwan and India to raise interest rates in recent weeks, even amid concern Europe’s debt crisis may impair global growth.
“Singapore will be among the fastest-growing countries not just in Asia, but the world, this year,” said Song Seng-Wun, a regional economist at CIMB Research Pte in Singapore. “Price pressures are already evident and we expect the central bank to be watching if inflation expectations are raised because of these numbers.”
The nation’s growth has already prompted the central bank to allow the currency to strengthen to temper inflationary pressures. The Singapore dollar is used instead of interest rates to conduct monetary policy in Southeast Asia’s fourth- largest economy.
The island’s currency added 0.4 percent to S$1.3766 per U.S. dollar as of 12:51 p.m. local time, bringing this quarter’s gain to 1.3 percent. The benchmark Straits Times Index rose for a fifth day, climbing 0.6 percent, and is set for the highest close since April 30.
The cost of insuring Temasek Holdings Pte’s bonds from non- payment using credit-default swaps fell 4 basis points to 43 basis points as of 10:15 a.m. in Singapore, the lowest level since June 21, according to Royal Bank of Scotland Group Plc and CMA prices. Temasek, a state investment company, is often used as a proxy for Singapore sovereign credit risk.
Estimates by Goldman Sachs Group Inc., BNP Paribas, Macquarie Group Ltd. and China International Capital Corp. for China’s 2010 growth range from 9.5 percent to 10.1 percent, compared with Singapore’s estimate for an expansion of at least 13 percent this year.
Singapore’s full-year growth has not exceeded 13 percent since 1972, when the economy was about a twelfth of last year’s size, according to the statistics department.
Singapore’s performance suggests “that the regional recovery retained significant momentum in recent months,” Brian Jackson, a Hong Kong-based senior emerging markets strategist at Royal Bank of Canada, said in an e-mail. “We continue to forecast further gradual policy normalization across the region over the rest of the year, including moderate appreciation in the Singapore dollar.”
Policy makers in neighboring Malaysia have raised interest rates three times this year, matching the number of increases by India’s central bank. In Taiwan, Governor Perng Fai-nan moved the key rate 12.5 basis points higher last month and the Bank of Korea unexpectedly increased its benchmark last week.
“With growth likely to remain above trend for the rest of the year, the Monetary Authority of Singapore may be inclined to maintain the policy of gradual appreciation at its October policy meeting,” Wai Ho Leong, a regional economist at Barclays Plc in Singapore, said in a note after the report. He raised Singapore’s 2010 growth forecast to 14.5 percent and predicted the currency may climb to S$1.35 per U.S. dollar in one year.
The two casinos run by Genting Singapore Plc and Las Vegas Sands Corp. opened in February and April this year after Prime Minister Lee Hsien Loong’s government scrapped a four-decade ban to help double tourism revenue by 2015. The resorts have attracted millions of visitors to their slot machines and baccarat and roulette tables.
The economy grew 19.3 percent in the second quarter from a year earlier, compared with the median estimate for a 17.3 percent gain in a Bloomberg News survey.
“Growth in the trade-related sectors was bolstered by healthy global trade flows, while the openings of the integrated resorts and higher visitor arrival numbers contributed to the growth in the tourism-related sectors,” the trade ministry said in a statement. “The financial services sector also grew strongly, supported by increased foreign-exchange trading and domestic bank-lending activities.”
Still, Singapore’s dependence on global trade may mean it’s unlikely to escape the impact of any renewed slowdown. Governments in Europe are embarking on austerity programs to cut budget deficits and households in some of the world’s largest economies are holding back spending, clouding the outlook for the rebound.
“In the European Union, domestic demand remains depressed as concerns over the sovereign-debt crisis persist,” the trade ministry said. “The implementation of fiscal austerity measures in some of the economies may further weaken their domestic demand. The weakening of the euro against key trading partners will also dampen import demand in the European Union.”
Signs of a “slowdown in the labor market” in the U.S. have affected consumer confidence, and “sluggish final demand” from the world’s largest economy as well as Europe has led to a moderation in manufacturing in Asia, the ministry said.
Singapore’s non-oil domestic exports will probably gain between 17 percent and 19 percent in 2010, from a previous projection of as much as 17 percent, the trade promotion agency said today. Overseas shipments rose 28.7 percent in June from a year earlier, after increasing a revised 24.3 percent the month before, the government said.