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."