Singapore economy rebounds but analysts cautious on outlook

Singapore economy rebounds but analysts cautious on outlook

Martin Abbugao, Agence France-Presse, Singapore

Singapore's economy rebounded in the third quarter after a
sharp SARS-led contraction in the second, the government said on
Friday, but analysts were cautious that the recovery is not yet
broad-based.

Quarter-on-quarter growth of 15 per cent reversed an 11 per
cent downturn in the second quarter, the Ministry of Trade and
Industry (MTI) said, citing preliminary figures based on the
economy's performance in July and August.

"This is the fastest quarter-on-quarter expansion since the
second quarter of 1997," the MTI said.

Third quarter year-on-year growth of one percent growth
compared with a 4.1 percent shrinkage in the June quarter.

The MTI said the city-state's trade-dependent economy, which
was hit badly by the outbreak of Severe Acute Respiratory
Syndrome (SARS), the war on Iraq and the economic woes of the
United States, would continue its rebound.

"The global economic recovery is gaining pace and an upturn in
investment spending appears to be in progress," it said.

"Barring significant adverse developments, such as a second
outbreak of SARS in Asia, Singapore's economic growth momentum is
expected to continue into the final quarter of the year."

The figures cheered the stock market, where the benchmark
index closed the morning session at 1,751.94 points, up 0.80
percent.

In a separate release, the Monetary Authority of Singapore
said the official forecast for annual growth this year would
remain at zero to one percent, a figure echoed by private sector
economists.

Unemployment, however, will remain high at an average 4.5-5.0
percent and accordingly the MAS said it maintained its neutral
foreign exchange policy stance to support the fragile economic
recovery and keep inflation low.

The trade ministry said the important manufacturing sector
expanded 2.5 percent on the year and the services sector edged up
0.8 percent. Construction shrank 9.5 percent.

Despite the headline increase, economists said the pace of the
rebound was below market expectations, given the sharp downturn
in the second quarter.

They noted that growth was not broad-based as the
pharmaceuticals sector mainly drove manufacturing, with the vital
electronics segment remaining sluggish.

Low Ping Yee, an economist with United Overseas Bank, said the
numbers indicated only a "modest recovery" but the outcome should
still be revised upwards when the September data is included.

"For September, we see a stronger pick-up in terms of
production so when the final numbers will come there could be a
slight upwards revision," she said.

Nizam Idris, deputy head of research at IDEAglobal research
house, said the figures were below market expectations but not a
cause for concern as yet.

Signs of a recovery in the U.S. market could boost electronics
exports next year, with the pharmaceuticals segment remaining
strong.

"So we will now have the twin engines of manufacturing and
pharmaceuticals driving the economy simultaneously next year,"
said Nizam, who expects GDP growth of up to 5.5 percent in 2004.

Song Seng Wun, a regional economist with G.K. Goh Research,
said he was surprised by the weak services sector despite the
strong performance of the equity markets, a pick-up in bank
lending and an increase in tourist arrivals.

He described the 0.8 percent growth in the services sector as
"slightly disappointing, which suggests that the underlying state
of the economy may be softer than people expect.

"I think our concern is with the quality of the numbers. If
they are all coming from the pharmaceuticals sector, how many
people will benefit?"

"The multiplier contribution to the economy from the
pharmaceuticals sector is relatively small. GDP may impress but
in terms of actual job creation, it's not as impressive.
Businesses are still cautious about the sustainability of the
recovery."