`Worst is over for Singapore'

`Worst is over for Singapore'

Martin Abbugao, Agence France-Presse, Singapore

Singapore's economy is showing its first signs of recovery with an end to a three-month decline in the crucial manufacturing sector offering the greatest cause for optimism, economists said on Friday.

Most economists agreed the June quarter gross domestic product (GDP) would contract because of the impact the Severe Acute Respiratory Syndrome (SARS) crisis had on business confidence and the travel industry.

However, they said their hopes for a rebound in the second half were buoyed by the news of a marked improvement on the manufacturing outlook.

The Purchasing Managers' Index (PMI) for June rose 1.4 points on the month to 50.8 points, ending three straight months of decline, according to the Singapore Institute of Purchasing and Materials Management.

A reading above 50 points means the manufacturing sector, which accounts for a bulk of total economic output, is expanding.

DBS Bank economist Lee Wee Liat described the June PMI reading as "the first glimmer of dawn" for the industrial sector and offered a positive forecast for the economy as a whole.

"We are optimistic about Singapore's second half 2003 outlook," Lee said.

"The June PMI reaffirmed our view that we will see a pick-up in the Singapore economy in the third quarter of 2003, underpinned by a recovery in our manufacturing sector."

Lee said GDP should grow 2.6 percent in the three months to September compared with a year earlier and expand 1.6 percent for the whole of 2003 -- which is within the government's downgraded target of between 0.5 and 2.5 percent.

Singapore's GDP was worth S$155.726 billion (US$89 billion) in 2002, according to official data.

"Given the indications coming out of the United States, we would expect the PMI to be maintained above the 50 percent level in the near future," Paul Schymyck, an economist with research house IDEAglobal, told AFP.

"It's providing a signal that the worst is over for the economy."

The government will release its advance estimates for three months to June GDP on July 10 but analysts said the market would be looking beyond the expected SARS-induced contraction during the quarter.

"We are getting clearer signs that the economy is back on the expansionary trail again," said Schymyck, who also pointed to robust regional stock markets and an improvement in the housing market take-up in Singapore.

"Of course, recovery also hinges on the U.S.," he said, citing recent data showing the huge U.S. services sector bounced back in June, with activity surging to the highest rate in nearly three years.

The United States is Singapore's biggest export market.

Schymyck is projecting growth of 2.5 percent in the six months to December and 1.1 percent for the full year.

The forecast economic rebound should also boost the Singapore dollar, which has fallen behind its Asian counterparts in terms of strength against the U.S. dollar, he said.

With SARS now under control in East Asia, consumption is also expected to pick up and translate into higher orders.

"As things go back to normal, there is a lot of pent-up demand so production will have to be stepped up," Schymyck said.

However, not all economists were so upbeat with GK Goh Securities' Song Seng Wun saying the rebound in electronics in the PMI index lacked conviction.

The indicator for the electronics sub-sector improved to 49.7 from 48.4 in May but was still below the 50-point benchmark.

"At this point, the June PMI only suggests very modest expansion in overall manufacturing activity in early third quarter. Nevertheless, we are hopeful that this modest recovery in June orders can be sustained in the coming months."