Singapore's economy grew 1.8% in Q4, dodged recession

SINGAPORE - Singapore's economy grew 1.8 per cent in the fourth quarter from the preceding three months at an annualised rate and after seasonal adjustments, defying expectations it would go into recession.

Manufacturing was the worst-performing sector in the trade-dependent Southeast Asian city-state, shrinking 10.8 per cent at a quarter-on-quarter annualised and seasonally adjusted rate.

But services provided some positive news, rising 7.0 per cent quarter-on-quarter.

From a year earlier, economic growth was 1.1 per cent in the fourth quarter and 1.2 per cent for the whole year, below the government's forecast of around 1.5 per cent for 2012 and far weaker than the 4.9 per cent expansion in 2011.

Key points:

Singapore, whose trade is around three times its gross domestic product, last had a recession in 2009.

The median estimate of economists polled by Reuters was for a quarter-on-quarter contraction of 0.9 per cent and year-on-year growth of 0.9 per cent.

 

Commentary: 

Michael Wan, Economist at Credit Suisse:

"The Q4 numbers were a surprise partly because of what the prime minister said. We thought there would be a technical recession."

"However, services also brought the Q4 growth up in spite of the weakness in manufacturing. Manufacturing was also not as weak as industrial production numbers implied. This contributed to the upward surprise."

"For 2013, we still expect growth to be weak at 2 per cent. We expect employment growth will start to moderate this year. It was stronger than expected last year, with companies hoarding labour in anticipation of tighter foreign labour rules."

"We also expect more companies to relocate and shift out of Singapore."

Selena Ling, Head of Treasury research at OCBC:

"We escaped recession by the skin of our teeth because Q2 and Q3 numbers were revised lower."

"Manufacturing still looks weak as seen from the double-digit decline (quarter-on-quarter and annualised). Near term, it's hard to see any improvement in manufacturing."

"On the positive side, there is a rebound in momentum. Hopefully, services can provide the lift ... A recovery may come earlier than expected because the Q2 numbers have been revised down, providing a lower base."

Joey Chew, Economist at Barclays:

"It's a pleasant surprise we managed to avoid a recession. The whole reason is because the first two quarters were revised lower."

"Manufacturing has contracted for three quarters in a row now, which is expected given industrial production numbers. Services grew a little better than expected. Perhaps some of the financial or tourism related industries did rebound from Q3."

"We expect Singapore to grow 2.1 per cent in 2013. Even though we had originally expected Singapore to go into recession in Q4, we thought it would have been short lived."

"There will be weak growth in Q1 but a more sustainable recovery from Q2 onwards. Q1 will still be precarious for the US economy, there's still uncertainties surrounding the fiscal cliff situation, debt ceiling etc. There will be some tightening that will affect households and corporates."

Market reaction:
The Singapore dollar was trading around 1.2217 to the US dollar compared with 1.2213 before the data.

Background
 

- In a revision, the economy shrank 6.3 per cent in the third quarter from April-June at a seasonally adjusted and annualised rate. The previously announced number was a 5.9 per cent contraction.

- Singapore has been badly hit by weakness in Western economies that has crimped demand for many of its exports.

- The city-state's electronic manufacturers have also failed to tap surging demand for smart phones, unlike rivals such as South Korea and Taiwan. For the first 11 months of 2012, electronics production fell 11.1 per cent compared with the same period of 2011, underscoring the weakness in export markets.