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Small annual growth in Singapore keeps state from recession

A worker adjusts polyfoam coins yesterday displaying greetings for the upcoming Lunar New Year in Singapore. The city-state has narrowly avoided a double-dip recession this year. PHOTO: AFP

Singapore's economy grew at a 0.1 percent annual rate in the fourth quarter, narrowly avoiding a recession. The central bank said economic growth will be sluggish for the next six months before demand for electronics exports picks up.

Five economists polled by Bloomberg News expected Asia's most export-dependent economy to record no growth after gross domestic product, the total value of all goods and services produced in Singapore, contracted an annualized 9.9 percent in the third quarter, seasonally adjusted.

Two years of slumping US demand for Singapore-made semiconductors, disk drives and other products has caused mounting losses at manufacturers such as Chartered Semiconductor Manufacturing Ltd, the world's third-biggest maker of made-to-order chips.

Economists and the central bank say there will be little relief until the second half of this year.

"We expect the Singapore economy to remain sluggish in first half of 2003, before staging a more balanced and firmly grounded recovery as the external environment improves and the global electronics industry strengthens," the Monetary Authority of Singapore said.

"We expect the Singapore economy to remain sluggish in first half of 2003, before staging a more balanced and firmly grounded recovery as the external environment improves and the global electronics industry strengthens."

A Monetary Authority of Singapore statement

The Singapore dollar had its biggest drop in three months after the central bank, which manages policy by targeting the value of the Singapore dollar rather than interest rates, said it will "provide sufficient flexibility" to support the recovery. It kept a "neutral" stance on exchange rate policy that has been in place since July 2001.

A neutral stance doesn't preclude a change in the currency, and traders say the bank may allow it to weaken to boost the economy.

"There's room for the Singapore dollar to weaken," said James Malcolm, a Singapore-based foreign exchange strategist at JP Morgan & Chase Co, the fifth-largest trader in the US$1.2-trillion-a-day currency market.

The Singapore dollar fell by as much as 0.5 percent to US$1.7435, the biggest drop since Oct. 7. It traded at S$1.7429 against its US counterpart at 12:44pm local time, from S$1.7341 before the report's release.

Overall the economy grew 2.6 percent in the fourth quarter from a year earlier -- its smallest year-on-year expansion rate in nine months.

Last month, Chartered Semiconductor Manufacturing said it would lose money for an eighth straight quarter as demand weakens for computer chips. Gul Technologies Ltd, a maker of printed circuit boards, also said Tuesday it will post a bigger loss last year than its S$29 million (US$16.7 million) deficit in 2001.

The outlook for exports may worsen further as a possible war in Iraq pushes up oil prices and curbs consumption in the US, which buys more than a fifth of the island's exports of semiconductors, disk drives and other products, analysts and company executives said.

"We are not expecting a fantastic first quarter since orders are still very slow and there is no demand ramp-up from the US," said KY Chai, chief executive at WPG International, which distributes electronics parts to manufacturers.

Singapore's US$84 billion economy, where exports exceed the gross domestic product by half, shrank 2 percent in 2001 -- its worst performance in almost four decades. Economists had feared a second recession after the economy shrank in the third quarter this year.

"We just averted a technical recession," said Irene Cheung, Asian sovereign and foreign-exchange strategist at ABN Amro Bank.

"The market's focusing on the near-term outlook, and given there's still a lot of uncertainty in the external environment, there's no assurance that a firm recovery will come in the near term."
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