Pacific Money

Singapore’s GDP Surprise

The city state beat all expectations with its latest number. China’s meanwhile confirmed its slowing economy.

Anthony Fensom

China’s numbers may have captured most investor interest, but Singapore delivered the biggest surprise among the latest economic growth data from Asia.

Just days after the International Monetary Fund delivered a warning on global growth, the city-state announced Friday a speedy 15.2 percent quarter-on-quarter growth rate for the June quarter, marking its fastest quarterly expansion in more than two years.

Singapore’s surge compared to the previous quarter’s 1.8 percent increase, and bettered all 12 estimates compiled by Bloomberg News in its survey of economists, which predicted a median expansion of 8.1 percent.

On a year-on-year basis, the Southeast Asian state’s economy grew by 3.7 percent, ahead of Bloomberg’s median forecast of 2 percent and in line with government predictions of a 1 to 3 percent GDP gain for 2013.

According to Singapore’s Ministry of Trade and Industry (MTI), manufacturing led the way, growing by 38 percent in the second quarter of 2013 compared to the previous quarter due to strong output from the biomedical manufacturing and electronics industries.

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The construction industry grew by a solid 9 percent over the quarter on an annualized basis, down slightly from the previous quarter’s 14 percent expansion. The state’s services industry, which accounts for around two-thirds of the economy, posted a similar rise, helped by a robust recovery in wholesale and retail trade and the transportation and storage sectors.

The economic expansion has helped unemployment drop near a five-year low to just 1.9 percent, with Singapore’s central bank allowing its currency to weaken against the US dollar to boost exports.

In a research note published Friday, ANZ economist Daniel Wilson said, “The rapid expansion of manufacturing was a little stronger than we anticipated, while we are encouraged to see the sustained pick up in the services sector.”

However, he noted that the strong growth figures highlighted the volatile nature of Singapore’s GDP data, which had averaged around 6 percent quarterly growth over the past decade with a standard deviation of 10 percent.

“Therefore, although this appears to be an outsized growth number, it is actually within one standard deviation of the average. This highlights the risk that the rapid expansion in [the second quarter] could be reversed as early as the next quarter,” he said.

Wilson said the outlook would depend on the external sector, with industrial production expected to moderate in the third quarter.

“Services growth should provide a base, but the swing factor in overall growth remains production,” he said.

In its announcement, MTI noted that the GDP figures were computed from data in the first two months of the quarter, April and May, and were subject to revision. With smog from Indonesian forest fires reaching critical levels in June, and amid the recent sell-off in financial markets on the US Federal Reserve’s “tapering” policy, the revised estimates may not be so uplifting, according to economists.

Amid anecdotal reports of Singaporeans escaping to other parts of Asia during the smog, the city’s tourism industry, which accounts for 6 percent of the economy, may have suffered the fallout.

As previously noted by The Diplomat, Singapore’s tightly controlled but competitive economy of 5.3 million citizens has been studied by Chinese officials investigating how the “Singapore model” might be emulated by Beijing.

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China production slows

On Monday, the region’s focus was concentrated on China as its National Bureau of Statistics announced a 7.5 percent growth rate for the second quarter, extending its longest streak of sub-8 percent expansion in two decades.

While in line with market expectations, a bureau spokesperson said the communist-ruled nation was “faced with grim and complicated economic situations”.

China’s June production growth of 8.9 percent was the slowest since the global financial crisis, with economists warning that the government’s 7.5 percent GDP growth target for 2013 was under pressure.

Achieving the target would mark China’s slowest growth since 1990, when Jiang Zemin ruled as the “paramount leader”.

“The new government under [Premier] Li should be seriously worried about the prospect as to whether they can meet the growth target,” ANZ economist Liu Li-Gang told Bloomberg News.

He warned that the growth trajectory was “heading to less than 7 percent” if the Chinese authorities failed to quickly adjust monetary policy and more carefully target fiscal policy.

“China has likely entered a prolonged period of deleveraging, which will last well into 2014,” Nomura’s chief China economist Zhang Zhiwei said.

For Singapore and the rest of Asia, a pickup in the U.S. and eventually the eurozone economy cannot come fast enough.