Singapore’s economy shrank for the first time in five quarters after its manufacturing and services industries weakened, a contraction that may be short-lived as the global recovery strengthens.
Gross domestic product fell an annualized 2.7 percent in the three months to Dec. 31 from the previous quarter, when it expanded a revised 2.2 percent, the trade ministry said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 1.3 percent contraction.
Singapore’s economy could benefit this year from improving demand in the U.S. and Europe, even as companies in the city-state grapple with rising costs and curbs on cheap foreign labor. The island’s trade promotion agency said in November exports will rebound in 2014 after contracting last year, easing pressure on the central bank to allow the currency to weaken to support overseas shipments.
“The global recovery is still definitely intact,” said Joey Chew, a Singapore-based economist at Barclays Plc. “2014 looks like it’s going to be much stronger than 2013 for the global economy so this will definitely support Singapore.”
The Singapore dollar was little changed against its U.S. counterpart at S$1.2642 as of 11:12 a.m. local time. The currency weakened more than 3 percent last year even as the central bank said it would maintain an appreciating stance to curb inflation pressures. The depreciation was the biggest annually since 2001, according to data compiled by Bloomberg.
The economy expanded 3.7 percent in 2013, accelerating from a 1.3 percent pace the previous year. Prime Minister Lee Hsien Loong on Dec. 31 reiterated a forecast for growth of 2 percent to 4 percent in 2014.
“The European and American economies are stabilizing,” Lee said in his New Year message. “Asian prospects are still positive, but there are problems and tensions,” he said, citing disputes between China, Japan and South Korea over historical issues and the ownership of various islands.
GDP grew 4.4 percent in the three months through December from a year earlier, compared with a median survey estimate of 4.8 percent.
Emerging Asian economies will probably weather the impact of reduced U.S. monetary stimulus, Asian Development Bank President Takehiko Nakao said in an interview on Dec. 26, predicting growth of about 6 percent in 2014.
“External demand will be improving,” Glenn Maguire, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., said before the report. “That we can have the U.S., Japan and Europe all expanding and growing positively in 2014 suggests that Asia, not just Singapore, should be seeing a fairly firm production and export outlook.”
While developed markets recover, a group representing Japan’s auto manufacturers said a slowdown in emerging nations will extend into this year, compounding uncertainty over demand in China and at home. Chinese manufacturing growth weakened in December, according to gauges of output released this week.
The Monetary Authority of Singapore, which uses the island’s dollar to manage inflation, said in October it will maintain a modest and gradual appreciation of the currency. It resisted providing stimulus as labor shortages and record home prices fueled consumer price gains. The central bank forecasts inflation to be 2 percent to 3 percent in 2014.
“The MAS will not do much to facilitate growth, it will rather err on the side of price stability,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. However, “there’s no compelling need for them to tighten just yet,” he said.
Manufacturing fell 4 percent last quarter from the previous three months, the trade ministry said. The services industry shrank 1.7 percent in the same period, while construction contracted 6.9 percent.
The slowdown in construction was a result of a moderation in private-sector building activities, the trade ministry said. Singapore’s fourth-quarter home prices slid for the first time in nearly two years, data released today showed. The decline trimmed annual price gains to the smallest since 2008 as mortgage curbs cooled demand in Asia’s second-most expensive housing market.
The GDP figures released today were computed largely from data for October and November and may be revised.