S’pore Economy Bounces Back - For Now

Source : TODAY, Friday, April 11, 2008

Singapore’s economy has not only averted a technical recession but bounced back with a vengeance in the first quarter of this year.

Flash estimates show GDP grew 7.2 per cent year-on-year, thanks largely to a big swing in pharmaceutical exports.

On a quarter-on-quarter basis, the economy grew a surprising 16.9 per cent.

However, experts warn about getting too excited. This flash estimate may not give a true picture of Singapore’s current economic health in the face of a possible United States recession.

“A protracted US recession and an expected slowdown in the other major economies, as well as those in Asia, will likely pose greater headwinds for Singapore’s exports in the coming quarters,” said Citigroup economist Kit Wei Zheng.

The pharmaceutical sector is notoriously volatile, regularly distorting Singapore’s manufacturing numbers. This sector was largely to blame for the 4.8-per-cent GDP contraction in the last quarter of 2007.

But in the first couple of months this year, big drugmakers such as Merck and Company produced more pharmaceuticals, offsetting an easing in Singapore’s larger electronics output.

“The economy is gradually diversifying and that is making it more resilient,” said Nicole Sze, an investment analyst at Bank Julius Baer.

HSBC economist Robert Prior-Wandesforde estimates that the real underlying growth rate of the economy was 6 per cent quarter on quarter, based on the average of the first and last quarters.

“That’s not too shabby for an economy potentially highly vulnerable to global developments,” he said. “The de-coupling thesis is alive and well.”

Even so, Finance Minister Tharman Shanmugaratnam warned last week that some slowdown is expected in the second quarter and beyond.