SINGAPORE'S economy grew in the first quarter at its fastest pace since 2005, but slightly below market expectations, and the government raised its 2008 inflation forecast and warned of increased United States recessionary risks.
Singapore's trade-dependent economy expanded at an annualised rate of 14.6 per cent in the first quarter after seasonal adjustments, as a recovery in drugs production boosted growth, the government said on Friday.
The government raised its 2008 inflation forecast to 5 to 6 per cent from 4.5-5.5 per cent on Friday, citing high oil and food prices in the near term. Analysts said rising consumer prices would force the Singapore central bank the Monetary Authority of Singapore (MAS) to let the Singapore dollar , its main policy tool, rise further to tame inflation.
'The pressure will be on to keep the currency strong. The bigger news here is the inflation number. The MAS has been forced finally to raise their inflation forecast range,' said Mr Robert Prior-Wandesforde, a HSBC economist.
Singapore's April inflation accelerated at a faster-than-expected pace of 7.5 per cent from a year ago, matching a high reached 26 years ago due to higher housing, food and oil prices.
First-quarter economic growth was below an advance official estimate of a 16.9 per cent expansion. A Reuters poll estimated the economy would grow an annualised 15.9 per cent in the January-March period.
Singapore's export-driven economy is seen by analysts as a barometer of demand for Asian goods. Exports were worth twice its $229 billion economy last year.
From a year earlier, Singapore's economy expanded 6.7 per cent in the first quarter, compared with an advance estimate of 7.2 per cent. The Reuters poll forecast growth of 7 per cent.
Manufacturing expanded 12.4 per cent in the first quarter from a year earlier, while construction grew 14.7 per cent. The financial services sector grew 13.4 per cent.
Economies across Asia are expected to slow this year as a stumbling US economy cuts demand for the continent's exports, a key driver of growth, but evidence of a slowdown has been mixed so far.
Growth in Japan, China and Hong Kong were surprisingly resilient in the first quarter, although South Korea's economy grew at its slowest quaterly pace in more than three years in the January-March period.
The government reiterated on Friday that the Singapore economy is expected to grow between 4 to 6 per cent this year, well below an average growth rate of 8.1 per cent in the last four years.
Analysts said the economy's surprisingly strong growth in the first quarter gave Singapore's central bank room to tighten monetary policy in April by allowing the Singapore dollar to rise further.
However, some economists said the strength of the Singapore dollar would crimp exports growth at a time when demand in the key US and European markets are weakening.
United States and Europe buy about a third of Singapore's non-oil domestic exports.
Singapore's growth is largely fuelled by manufacturing of goods such as electronics, drugs and oil rigs. However, the economy is leaning more on other sectors such as tourism, financial services and construction to underpin growth. -- REUTERS
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