Trade-dependent Singapore narrowly avoided a technical recession in the third quarter, official estimates showed yesterday, but analysts said the city-state’s growth outlook remains subdued because of China’s slowdown.
In a move to bolster growth, the Monetary Authority of Singapore (MAS) eased policy for a second time this year, slightly reducing the Singapore dollar’s rate of appreciation to make exports more competitive after other Asian countries weakened their own currencies.
The central bank uses currency policy rather than interest rates as a tool to tweak the city-state’s open economy. It manages the Singapore dollar against an undisclosed basket of currencies of its major trading partners and competitors.
“The global disinflationary trend and depreciating currencies of our trading partners and competitors had somewhat eroded Singapore’s export competitiveness,” United Overseas Bank Ltd said in a market commentary. “Going ahead, the ‘milder’ appreciation of our currency against the basket of currencies could help to support our export growth.”
The Singapore dollar rose following the central bank move as traders focused on news that the economy averted a recession, but analysts expect it to ease in the coming months.
Advance estimates from the trade ministry showed GDP grew 0.1 percent in the July to last month quarter, defying expectations of a second consecutive quarterly contraction, which would have pushed the economy into a technical recession.
“Despite the close shave, the story line hasn’t changed,” DBS Bank said, adding that the “growth outlook remains dicey.”
On an annual basis, Singapore’s GDP expanded 1.4 percent in the three months to last month, slowing from 2 percent year-on-year growth in the June quarter.
The GDP estimates were based on only two months of data — July and August — and adjustments could still be made when the final numbers are calculated with figures for last month.
“Singapore is not yet out of the woods,” IHS Global Insight Asia-Pacific chief economist Rajiv Biswas told reporters.
The government expects GDP to expand 2 percent to 2.5 percent for the full year, but DBS is forecasting 1.8 percent growth.
“As China’s GDP growth continues to slide, its Asia-Pacific neighbors are starting to feel the pain,” Biswas said.
He said the region’s vulnerability to the slowdown in China has risen over the past decade, as China’s GDP surged to US$10.3 trillion last month from only US$2.3 trillion in 2005.
Last year, China accounted for 15.3 percent of Singapore’s non-oil domestic exports, much larger than the EU’s share of 11.1 percent and 9.5 percent for the US, he said.
China also bought 35 percent of Australia’s exports, 25 percent of South Korea’s and 20 percent of Japan’s last year, he said.
The World Bank is forecasting China’s GDP to grow by 6.9 percent this year, moderating to 6.7 percent next year and 6.5 percent in 2017. GDP rose 7.3 percent last year.
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