SINGAPORE: Singapore’s trade driven economy contracted in the last three months of 2011, signalling it may slip into a technical recession as a slump in manufacturing output and slowdown in external demand hurt exports.
The contraction, however, was unlikely to bring about a change in monetary policy which leaned towards a gradual and modest appreciation of the Singapore dollar, most economists said.
Advance estimates showed gross domestic product (GDP) fell 4.9% in the fourth quarter compared with the July-September period on a seasonally adjusted annualised rate.
Manufacturing output plunged 21.7% quarter-on-quarter, the trade ministry said yesterday.
“The case for further MAS (Monetary Authority of Singapore) easing in April is less clear cut than in past recessions,” said Citigroup economist Kit Wei Zheng, noting inflation remained elevated while the slide in GDP was relatively modest compared with past recessions.
The South-East Asian country, whose trade is about three times its GDP, is considered a regional bellwether because of its small domestic economy and dependence on global trade and investments.
Singapore reported higher-than-expected inflation figures for November even as industrial production fell, putting pressure on the Government to announce new measures to contain prices and keep costs down.
Citigroup’s Kit said the Government might choose to support the economy by helping businesses keep costs down when it unveiled its budget in February.
“But the scale of fiscal stimulus is likely to be modest, as the Government may want to conserve fiscal bullets in the first year of its term, or for the contingency that the recession deepens,” he said.
Singapore manages monetary policy by targeting the value of its dollar against an unnamed basket of currencies.
In October, MAS retained its bias for a modest appreciation of the Singapore dollar, but said it would reduce the pace of increase.
Singapore narrowly averted a technical recession in the third quarter, largely because of a surge in biomedical production.
Most analysts expect the economy to continue contracting in the first quarter of 2012, resulting in a technical recession which is defined as two consecutive quarters of negative GDP.
“The outlook for 2012 remains cautious given Europe’s debt crisis, China’s slowdown and uncertainty over US tax measures,” Bank of America Merrill Lynch economist Chua Hak Bin said in a note to clients. – Reuters
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