Singapore contraction tests Asia resilience

Singapore: Singapore's economy shrank for the second time in three quarters, highlighting Asia's vulnerability to the European debt crisis even as manufacturing strengthens in India and China.

Gross domestic product (GDP) fell an annualised 4.9 per cent in the fourth quarter of 2011 from the previous three months, when it climbed a revised 1.5 per cent, Singapore's trade ministry said yesterday. The median of 11 estimates in a Bloomberg News survey was for a five per cent contraction. The economy grew 4.8 per cent in 2011 and may expand between one to three per cent this year, Prime Minister Lee Hsien Loong said on Saturday.

The contraction brings into question Asia's resilience to a faltering global economy even as regional stocks and currencies climbed after reports showed rising purchasing managers' indexes in China and India. The Monetary Authority of Singapore, which uses the exchange rate to manage inflation, eased its policy stance last quarter as it juggled protecting growth with containing price gains in the city of 5.2 million people.

"There is no disputing the overall story that Asia remains somewhat resilient to the Eurozone, but we should not be overly optim-istic," said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. "There is still a consistent story of slowing growth. I don't see the effervescence in the markets holding up for too long."

A Purchasing Managers' Index for India released by HSBC Holdings Plc and Markit Economics rose to the highest level in six months in December, while one released by China's statistics department showed manufacturing rebounded from a contraction. Australian manufacturing expanded for the first time in six months in December, driven by gains in basic metals, transport and publishing, a private survey released today showed.

A Chinese non-manufacturing PMI jumped to 56 in December from 49.7 in November, the logistics federation and statistics bureau said yesterday.

Stocks index slump

The MSCI Asia Pacific Index of stocks rose 1.1 per cent in Singapore. It slumped about 17 per cent in 2011, halting a two-year rally in equities. Singapore's benchmark Straits Times Index climbed 1.1 per cent, while the island's dollar strengthened 0.4 per cent to S$1.2920 (Dh3.68) against the US currency.

"We don't see the Singapore dollar strengthening on a prolonged basis and we expect it may grow weaker still in the first quarter," said Enrico Tanuwidjaja, a Singapore-based currency strategist at Malayan Banking Bhd. "People will still flock to the US dollar as risk remains and uncertainty lingers. There is little to be cheery about for the Singapore economy."

Singapore's growth will "inevitably be affected" this year in a "difficult" global economy, Prime Minister Lee said on Saturday in a New Year message.

"The external environment is uncertain," Lee said. "Debt problems in Europe are far from solved."

European leaders return to work this week seeking to buy time for the Spanish and Italian governments to wrest control over their debt and rescue the single currency from fragmentation in its 10th anniversary year. Purchasing-manager indices for the UK, Switzerland and Norway due yesterday were to show manufacturing contracted in December, while Germany's economy probably lost jobs for a second month, according to economists surveyed by Bloomberg.

Sweden's central bank will release minutes of its December meeting, where it cut its interest rate for the first time since 2009.

In the US, the Federal Reserve will also release minutes of its December meeting, where policy makers left unchanged a statement that economic conditions are likely to warrant "exceptionally low" interest rates "at least through mid- 2013".

Other reports from the US may show manufacturing and construction spending rose. The Institute for Supply Management's factory index climbed to a six-month high of 53.4 in December, according to the median of 63 estimates in a Bloomberg survey. Readings above 50 indicate expansion. Spending on construction projects advanced 0.4 per cent in November from October, the Commerce Department may say.

Vulnerable

Singapore, located at the southern end of the 965km Malacca Strait and home to the world's second-busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut its reliance on exports.

Manufacturing rose 6.5 per cent from a year earlier in the three months ended December 31, after climbing a revised 13.4 per cent in the third quarter, the trade ministry said yesterday. The services industry grew 3.2 per cent last quarter from a year earlier, after gaining 3.7 per cent in the previous three months.

"Manufacturing and services will continue to be quite weak, and won't prove supportive of the economy," said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. "We may see a technical recession later this year."