Singapore Cuts 2011 Export Growth Forecast as Risks to Global Economy Rise

Enlarge image

Singapore Cuts Export Growth Forecast as Global Risks Rise

Munshi Ahmed/Bloomberg

Gross domestic product will probably rise 5 percent to 6 percent this year, less than an earlier estimate of growth of as much as 7 percent, the trade ministry said today.

Gross domestic product will probably rise 5 percent to 6 percent this year, less than an earlier estimate of growth of as much as 7 percent, the trade ministry said today. Photographer: Munshi Ahmed/Bloomberg

 

Play Video

July 14 (Bloomberg) -- Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore, talks about the nation's economy, local currency and central bank monetary policy. Singapore’s economy shrank for the first time in three quarters as manufacturing fell, adding to evidence of easing Asian growth with global risks rising. Ling speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Enlarge image

Singapore Cuts Export Growth Forecast as Global Risks Rise

Munshi Ahmed/Bloomberg

Non-oil domestic exports will probably rise 6 percent to 7 percent in 2011, lower than a previous forecast for shipments to grow 8 percent to 10 percent, the trade promotion agency said in a statement today.

Non-oil domestic exports will probably rise 6 percent to 7 percent in 2011, lower than a previous forecast for shipments to grow 8 percent to 10 percent, the trade promotion agency said in a statement today. Photographer: Munshi Ahmed/Bloomberg

Enlarge image

Singapore Cuts Export Growth Forecast as Global Risks Rise

Munshi Ahmed/Bloomberg

The Singapore dollar has reached unprecedented levels since the central bank said in April it would allow further appreciation to tame price gains, the third policy tightening in a year.

The Singapore dollar has reached unprecedented levels since the central bank said in April it would allow further appreciation to tame price gains, the third policy tightening in a year. Photographer: Munshi Ahmed/Bloomberg

Singapore cut its forecast for export growth this year as a struggling U.S. economy and Europe’s debt crisis threaten overseas sales, valued at more than half of the island’s gross domestic product.

Non-oil domestic exports will probably rise 6 percent to 7 percent in 2011, less than a previous forecast for shipments to grow 8 percent to 10 percent, the trade promotion agency said in a statement today. Gross domestic product fell an annualized 6.5 percent in the second quarter from the previous three months, compared with a preliminary estimate of 7.8 percent, the trade ministry said separately.

Asia faces the risks of weakening export demand and rising currencies after Standard & Poor’s cut its U.S. credit rating and a sell-off in Italian and Spanish debt intensified risks to world growth. A global stocks rout in the past week may put pressure on central banks to delay further monetary policy tightening after the region led interest-rate increases in the past year, even as inflation remains elevated.

“The effects of slower global growth are usually more pronounced in Singapore than other Asian countries because it is more open,” said Wai Ho Leong, senior regional economist at Barclays Capital in Singapore. “Still, domestic demand is running at a high note. Inflation is still going to be with us in the second half so the central bank will maintain a strong Singapore dollar policy at about the current pace.”

Singapore Dollar

The currency, the best performer in Asia this year among currencies tracked by Bloomberg, pared gains to 0.3 percent after the economic report, trading at S$1.2095 against its U.S. counterpart as of 11:05 a.m. local time, from as much as 0.6 percent previously.

The Singapore dollar has reached unprecedented levels since the central bank said in April it would allow further appreciation to tame price gains, the third policy tightening in a year. The monetary authority raised its inflation estimate for 2011 to 4 percent to 5 percent last month, from a previous estimate of 3 percent to 4 percent.

Singapore’s monetary policy stance remains appropriate, Ong Chong Tee, deputy managing director at the central bank, told reporters today. Policy makers are giving equal priority to containing inflation and spurring growth, Kwek Mean Luck, a deputy secretary at the trade ministry, said at the same briefing.

Volatile Economy

Singapore will be one of the main beneficiaries of inflows into the region as global funds step up diversification into non-dollar assets after the U.S. rating downgrade, according to Macquarie Group Ltd. It is the only economy in Southeast Asia with a top rating from S&P, Moody’s Investors Service and Fitch Ratings.

Still, Singapore remains vulnerable to fluctuations in overseas orders for manufactured goods even as the government boosts financial services and tourism, making it the most volatile Asian economy, according to Credit Suisse Group AG. The island, located at the southern end of the 600-mile (965- kilometer) Malacca Strait, is home to the world’s second-busiest container port.

“Singapore is historically more sensitive to a U.S. and global downturn,” Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, said before the report. “Inflation remains high while growth is stalling. The Monetary Authority of Singapore faces a difficult policy decision in October.”

Growth Forecast

Gross domestic product will probably rise 5 percent to 6 percent this year, less than an earlier estimate of growth of as much as 7 percent, the trade ministry said today. Prime Minister Lee Hsien Loong first gave the new forecast on Aug. 8.

DBS Group Holdings Ltd., Bank of America Merrill Lynch and Credit Suisse have also cut their 2011 growth estimates for Singapore in the past week.

Downside risks have increased amid “sluggish” growth in developed economies, the trade ministry said today. Market sentiment remains fragile in the European Union amid concern of contagion from the peripheral economies to the wider region, it said.

“Concerns of a double-dip recession in the U.S. have emerged, as upcoming plans for fiscal consolidation and weak labor and housing markets dampen consumer and business sentiments,” it said. “Should these situations worsen, Singapore’s economic growth could be lower than expected.”

Market Confidence

Europe’s debt woes and a struggling U.S. economy have contributed to a loss in investor confidence that has wiped about $9 trillion off stocks worldwide since the beginning of May. The U.S. Federal Reserve pledged yesterday for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated.

The Fed’s announcement “helps to stem the lack of confidence in the market,” Kwek said.

The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.

Singapore’s GDP increased 0.9 percent in the second quarter from a year earlier, compared with the median estimate for a 0.4 percent gain in a Bloomberg News survey of 12 economists.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net