Singapore’s economy unexpectedly expanded last quarter as manufacturing declined less than initially estimated amid recoveries in advanced countries.
Gross domestic product rose an annualized 0.1 percent in the three months through June from the previous quarter, when it climbed a revised 1.8 percent, the trade ministry said in a statement today. That compares with a July estimate of a 0.8 percent contraction and the median forecast in a Bloomberg News survey of 14 economists for a 0.3 percent drop.
“While global growth in the first quarter of the year turned out weaker than expected, recent incoming data suggest that global economic activities are recovering modestly,” the trade ministry said. Externally-oriented sectors such as finance, insurance and wholesale trade are likely to support expansion in the second half, it said.
The export-dependent Southeast Asian nation is set to benefit from a recovery in global growth, which is helping to offset higher business costs as the government pursues a plan to slow the inflow of foreign workers, boost productivity and attract new industries. The U.S. economy is improving, the euro area will benefit from an accommodative monetary policy and China has taken steps to support expansion, Singapore’s trade ministry said.
“Given the slowly improving external demand for both goods and services, led by developed economies, Singapore should be on track to achieve GDP growth of about 3 percent this year,” said Song Seng Wun, a regional economist at CIMB Research in Singapore. Even so, “the still uneven labor productivity performance suggests much work needs to be done.”
The Singapore dollar gained as much as 0.1 percent after the report. It traded little changed at 1.2502 against the U.S. currency as of 10:51 a.m. local time.
The economy expanded 2.4 percent in the second quarter from a year earlier, after growing a revised 4.8 percent in the previous three months, the trade ministry said today. The median estimate in a Bloomberg survey was for a 2.3 percent gain.
Manufacturing declined 15.2 percent in the second quarter from the previous three months, compared with a July estimate of a 19.4 percent contraction. Services rose 4.5 percent in the same period, while construction gained 0.3 percent.
The ministry reiterated Prime Minister Lee Hsien Loong’s Aug. 8 forecast for 2014 growth of 2.5 percent to 3.5 percent. Separately, the estimate for non-oil domestic exports was cut to a contraction of between 1 percent and 2 percent, from an increase of 1 percent to 3 percent previously.
The GDP forecast, which is narrower than an earlier prediction of 2 percent to 4 percent, factors in downside risks from the global economy, Ow Foong Pheng, permanent secretary at the trade ministry, told reporters today. Singapore will monitor geopolitical risks, she said.
The central bank’s policy stance remains appropriate and unchanged, said Jacqueline Loh, deputy managing director at the Monetary Authority of Singapore. The city state, which uses the island’s dollar to manage price pressure, said in April it will maintain a modest and gradual appreciation of the currency.
While domestically-oriented sectors such as business services and information and communications are expected to remain resilient in the second half of the year, growth in some labor-intensive segments such as retail and food services may be weighed down by labor constraints, the trade ministry said.
“Growth momentum going forward will be tepid,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said in a note. “The economy continues to be weighed down by the domestic restructuring and external uncertainties. Manufacturing has bottomed but the services sector remains a risk.”