Singapore Economy Probably Expanded on Manufacturing, Capping Record Year

Singapore’s economy probably returned to growth this quarter as manufacturing rebounded, putting the nation on course to surpass Malaysia’s output with the world’s second-fastest growth rate this year.

Gross domestic product rose an annualized 9.4 percent in the three months through Dec. 31 from the previous quarter, when it contracted 18.7 percent, according to the median estimate of eight economists surveyed by Bloomberg News. The economy grew 13.2 percent from a year earlier, the median of 12 estimates showed. The report is due at 8 a.m. on Jan. 3.

Asia has led a global recovery this year as growth in developed markets was restrained by Europe’s sovereign credit woes and U.S. unemployment that remains above 9 percent. Prime Minister Lee Hsien Loong has said Singapore can’t maintain this year’s pace of expansion, forecast at 15 percent, and his policy makers have moved to cool the property market and allowed faster currency gains to tame prices.

“Inflation risks for Singapore appear to be tilted toward the upside,” said Alvin Liew, a Singapore-based economist at Standard Chartered Plc. After the boost from manufacturing this year, Singapore’s tourism and financial services industries will increasingly drive growth in 2011, spurred by “rising regional domestic demand from China and Southeast Asia,” he said.

Lee may give some economic estimates in his annual New Year’s Eve message later today. The government expects GDP to expand as much as 6 percent in 2011, and its forecast for this year would make the city of 5 million people the fastest-growing economy in the world after Qatar’s, according to International Monetary Fund estimates.

Overtaking Malaysia

Singapore’s GDP may reach about $210 billion this year after rising at the fastest pace since independence in 1965, while the economy of Malaysia, a country 478 times its size, will expand 7 percent to $205 billion, government forecasts show. Malaysia was Southeast Asia’s third-largest economy last year, behind Indonesia and Thailand.

The Singapore dollar has climbed more than 8 percent against the U.S. currency this year, marking its biggest one- year gain since 1994 and the fourth-best performance in Asia excluding Japan. The currency, which rose 0.3 percent to S$1.2872 versus the U.S. dollar at 11:40 a.m. today, may strengthen to S$1.24 at the end of 2011, according to a central bank survey of economists published this month.

Inflation Quickens

The Monetary Authority of Singapore said in October it will steepen and widen the currency’s trading band while continuing to seek a “modest and gradual appreciation,” after undertaking a one-time revaluation in April. The central bank, which uses the exchange rate rather than a benchmark interest rate as its main tool to manage inflation, guides the Singapore dollar against a basket of currencies within an undisclosed band.

Inflation will average between 2 percent and 3 percent next year, the central bank predicts. Consumer prices rose 3.8 percent in November, the biggest increase in 22 months.

Singapore, located at the southern end of the 600-mile (966-kilometer) Malacca Strait, has remained vulnerable to fluctuations in overseas demand for manufactured goods even after the government boosted financial services and tourism.

The island’s non-oil exports, which are forecast to increase 24 percent this year, are equivalent to more than half of GDP. Industrial production rose at the fastest pace in six months in November, climbing 39.8 percent from a year earlier after a 29.8 percent gain in October. In comparison, industrial output grew about 14 percent last quarter.

Ship Orders

The island’s biggest companies are boosting operations or expanding overseas as the global economy recovers from last year’s slump. DBS Group Holdings Ltd., Southeast Asia’s biggest bank, said this month it will take over Royal Bank of Scotland Group Plc.’s retail and commercial banking businesses in China.

Neptune Orient Lines Ltd., owner of Asia’s second-largest container line and controlled by Singapore state-investment fund Temasek Holdings Pte, in July signed a $1.2 billion contract for as many as 12 vessels with Daewoo Shipbuilding & Marine Engineering Co. Singapore is the world’s second-busiest container port.

The island has also benefited from rising visitor arrivals as new attractions such as the country’s first casinos lure tourists. The resorts run by Genting Singapore Plc and Las Vegas Sands Corp. incorporate gambling centers, restaurants, malls and a Universal Studios Inc. theme park.

Singapore Airlines Ltd., the world’s second-largest carrier by market value, said last month it would increase capacity as business travelers and holidaymakers reserve more flights.

The city state added 82,000 jobs in the nine months through September, pushing the unemployment rate to 2.1 percent, the lowest level in 2 1/2 years. Average wages before adjusting for inflation rose 5.4 percent in the third quarter from a year earlier.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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