SINGAPORE: The city-state eased monetary policy yesterday after the economy suffered its worst-ever contraction in the June quarter, but factories and consumer spending are bouncing back, the government said.
In the clearest picture yet of the damage wrought by an 11-week Severe Acute Respiratory Syndrome (SARS) outbreak on Singapore’s trade-reliant economy, the government said gross domestic product (GDP) shrank 11.8% in April–June from the March quarter, its worst fall on record.
The tumble was more than double the 4% drop expected by most economists, and reflected a collapse in tourism during Singapore’s battle with SARS and weak manufacturing spending during the Iraq war.
Manufacturing output fell 7.5% in the year to the June quarter, while service industry activity – which makes up two-thirds of GDP – declined 3%, the government said. Construction, mired in a seven-year slump, fell 10.9%.
“The second-quarter number is quite terrible,” said Joseph Tan, an economist at Standard Chartered Bank.
But a recovery was already taking root, the Ministry of Trade and Industry said, sticking by its full-year growth forecast of 0.5% to 2.5%. It had compiled the advance GDP estimate from April and May data with partial June information.
“It is not doom and gloom, so there is a little bit of hope,” said Song Seng Wun, an economist with stockbrokers G.K. Goh.
To speed the turnaround, the Monetary Authority of Singapore (MAS) loosened monetary policy for the first time since January 2002 by re-centring the secret policy bands within which it manages the Singapore dollar – its main inflation-taming tool.
The easing knocked the Singapore dollar off two-week highs to 1.7550 per US dollar, a move which should help the electronics and pharmaceutical exporters at the heart of the economy by making their goods more competitively priced in US dollars.
“Monetary policy, of course, can be even more aggressive,” said Chia Woon Khien, a strategist at DBS Bank.
Tan of Standard Chartered said about 75% of the second- quarter weakness reflected the impact of SARS on the services sector, with the remainder due to weak external demand, mainly from the United States.
In the year to the second quarter, GDP contracted 4.3% – also deeper than forecast by economists, who had expected a fall of 2.3%.
But economists say the chances of recession are extremely low. Vindicating this, Singapore’s stock market is up 5.8% since June, climbing again yesterday as optimism for the second half 2003 overrode the latest data.
“There is optimism out there and investors believe the recovery, albeit slow, will be steady,” said John Yap, the executive director of UOB-Kay Hian Securities.
Much of the hope is centred on electronics exports, which account for 60% of Singapore’s total non-oil exports. Most are shipped to the United States, where companies are boosting information technology spending for the first time in three years of cuts.
“Barring any adverse external shocks, economic performance in the second half is expected to improve,” the Ministry of Trade and Industry said. – Reuters
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