Singapore’s economy expanded last quarter as manufacturing declined less than initially estimated amid recoveries in advanced countries. The unexpected growth was helped along by a strong showing in its financial and insurance sectors.
The city-state’s GDP rose an annualized 0.1 percent in the three months through June from the previous quarter, when it climbed a revised 1.8 percent. On an annual basis, the economy expanded 2.4 percent in the second quarter, in line with expectations and better than the government's 2.1 percent initial estimate
The export-dependent Southeast Asian nation seems to be benefiting from a recovery in the overall regional growth, which is helping to offset higher business costs as the government pursues a plan to slow the inflow of foreign workers, boost productivity and attract new industries.
Global Improvements
Singapore’s trade ministry reported that with the U.S. economy improving, the euro area benefiting from an accommodative monetary policy and China taking steps to support expansion, externally-oriented sectors such as finance, insurance and wholesale trade are likely to support expansion in the second half.
According to Ow Foong Pheng, permanent secretary at the trade ministry, the GDP forecast, while narrower than an earlier prediction of 2 percent to 4 percent, factors in downside risks from the global economy. The central bank’s policy stance remains appropriate and unchanged and will maintain a modest and gradual appreciation of the Island’s dollar.
The GDP revision did not come as a surprise but Singapore's outlook continues to depend greatly on external sectors.
"You cannot look at Singapore in isolation. You need to look at it with the developing world, the U.S. and Europe and rest of Asia," said Kunal Ghosh, emerging market portfolio manager at Allianz Global Investors. "The part which is making us very optimistic is how China is positioning itself … When you want to look at Singapore, you need to look at what's driving Asia and that's China, which is the key to the next 12-18 months and how shares will shape up ahead."
Global trade has become even more important of late as Singapore's reputation as a shopping haven has been taking a beating with rising prices and growing regional competition. And apart from rising prices, the increasing popularity of e-commerce, as well as the preference by some brands to set up shop elsewhere in Asia, has significantly reduced the need for people to travel to Singapore to shop. A 14 percent annual decline in the number of Chinese visitors was recorded over the first quarter of 2014.
Not all economists agree with Singapore’s predicted outlook. Some have recently either downgraded or noted downside risks to their full-year growth forecasts, citing factors such as weakness in manufacturing activity and concerns about the impact of the ongoing economic restructuring.