Singapore Economy Grew Last Quarter After Production Pick-Up (1)

Singapore’s economy expanded last

quarter after a pick-up in manufacturing at the year end, with

the government predicting an improvement in overseas demand in

2014 amid a global recovery.

Gross domestic product rose an annualized 6.1 percent in

the three months through December from the previous quarter,

when it climbed a revised 0.3 percent, the trade ministry said

in a statement today. That compares with a January estimate of a

2.7 percent contraction and the median in a Bloomberg News

survey of 12 analysts for a 0.8 percent gain.

The expansion is good news for the city-state’s companies

that have struggled with tepid demand and rising costs, and the

government may announce in its annual budget tomorrow measures

to help businesses cope better. At the same time, as one of the

most open economies, Singapore is vulnerable to fluctuations in

world growth and the International Monetary Fund said this

year’s improved global outlook hinges on recent market

volatility from Turkey to Brazil being short-lived.

“The underlying growth trend is underpinned by improving

global conditions, but the recovery will also be bumpy,” said

Vishnu Varathan, an economist at Mizuho Bank Ltd. in Singapore.

The Singapore dollar was little changed at S$1.2635 against

its U.S. counterpart as of 9:44 a.m. local time.

Global Growth

GDP (SGDPYOY) increased 5.5 percent last quarter from a year earlier,

today’s report showed. The economy grew a revised 4.1 percent in

2013, and the government reiterated its forecast for a 2 percent

to 4 percent expansion this year. The trade promotion agency

today maintained its forecast for exports to rise 1 percent to 3

percent in 2014.

Initial estimates released in January were computed largely

from data for October and November. Singapore’s industrial

production and non-oil domestic exports rose more than

economists estimated in December.

The island’s output can be affected by swings in

pharmaceuticals production by companies such as Sanofi-Aventis

SA as drug makers sometimes shut plants for cleaning before

making different products. The government said today it also

revised estimates for 2012 after it received more data from some

services industries.

While the IMF last month raised its projection for global

growth this year as expansions in the U.S. and U.K. quicken, it

said yesterday that risks of prolonged market turmoil in

emerging markets and of deflation in the euro area are

threatening improved economic prospects.

Weak Recovery

The IMF, in a staff report prepared for central bankers and

finance ministers from the Group of 20, said the recovery is

still weak and “significant downside risks remain.” A January

global growth forecast of 3.7 percent for this year, from 3

percent in 2013, depends on market volatility being short-lived,

it said.

Singapore’s manufacturing grew 10.4 percent in the fourth

quarter from the previous three months, compared with a January

estimate of a 4 percent contraction. Services rose 6.1 percent

in the same period, while construction expanded 1.4 percent.

Home prices slid for the first time in almost two years

last quarter as the government introduced more taxes and

restrictions to widen a campaign begun in 2009 to curb

speculation in Asia’s second-most expensive luxury housing

market. The measures came as housing values rose in the past

five years to a record amid low interest rates, raising concerns

of a property bubble.

Gradual Appreciation

The Monetary Authority of Singapore maintained its

commitment to a modest and gradual appreciation of the currency

in October, forgoing stimulus to manage price gains. While

companies face domestic cost pressures from higher rentals and

wages, imported inflation is expected to remain subdued, the

trade ministry and central bank said last month.

The policy stance remains “unchanged and appropriate,”

central bank Deputy Managing Director Jacqueline Loh told

reporters today.

“They are in a very nice, comfortable position

currently,” said Edward Lee, regional head of research at

Standard Chartered Plc in Singapore, referring to the central

bank. “Inflation is slowing. Growth is also improving

slightly.”

Singapore is nearing the midpoint of a 10-year economic

transition strategy to move away from dependence on cheap

overseas workers while attracting new industries such as

research and development. Prime Minister Lee Hsien Loong has in

recent years tightened the hiring of foreigners, after an influx

led to voter discontent over infrastructure strains and

increased competition for jobs, property and education.

Small Companies

The government in its budget tomorrow may enhance measures

to help small companies produce more with fewer workers to cope

with the city’s labor shortage, economists at Bank of America

Corp. and Citigroup Inc. said. Labor productivity climbed in the

second and third quarters of 2013, after consecutive declines in

the six previous ones. The government said in 2010 it wants to

achieve annual productivity growth of 2 percent to 3 percent.

The island’s unemployment rate held at 1.8 percent in the

three months through December, matching a five-year low reached

in the last quarter of 2012. To bolster the workforce, Lee has

encouraged young couples to have more babies while encouraging

older Singaporeans to return to work.

“Tightness in labor conditions could weigh on growth in

some labor-intensive domestically-oriented sectors,” the trade

ministry said today.

Medical Expenses

Lee said in a New Year message that the government is

“working steadily” toward new directions for the country,

including strengthening social safety nets and sharing “fruits

of progress more widely” through support for low-wage earners

and homeownership programs. The government will set out its

agenda for the rest of its term later this year, he said.

Finance Minister Tharman Shanmugaratnam will unveil details

of a so-called Pioneer Generation Package designed to reduce

medical expenses for elderly Singaporeans in the budget tomorrow,

Lee said Feb. 9. The package will probably build on existing

social safety nets, according to Wai Ho Leong, an economist at

Barclays Plc in Singapore.

To contact the reporter on this story:

Sharon Chen in Singapore at

schen462@bloomberg.net

To contact the editor responsible for this story:

Stephanie Phang at

sphang@bloomberg.net

Singapore Economy Grew Last Quarter After Production Pick-Up (1)