Stronger-than-expected growth in Singapore’s economy is a reassuring sign that the recovery in major developed economies is finally being felt on Asia’s shores.
Gross domestic product for the three months to Sept. 30 grew 5.1%, faster than the second quarter’s revised 4.2% growth, the government estimated Monday. Compared with the previous quarter the economy contracted 1.0% on a seasonally adjusted and annualized basis, but that’s after an unsustainable (and upwardly revised) 16.9% expansion in April-June.
Monday’s yearly and quarterly growth figures both beat analyst estimates. The government and central bank expect the economy to grow 2.5%-3.5% this year and next.
Singapore is the most trade-dependent nation in Asia, with exports about three times the size of the local economy. Nearly 30% of its shipments still go to the developed world, making the city-state highly responsive to global growth patterns.
“Singapore is the most open economy in Southeast Asia, and generally when you have an improving external backdrop, Singapore will be one of the first to see an improvement,” said Daniel Wilson, an economist at ANZ Bank.
Inter-Asian trade has become increasingly important to Singapore since the global financial crisis, but the city remains more leveraged to the “traditional sources” of U.S. and Japan than it is to China.
Every one percentage-point change in U.S., European and Japanese growth historically has translated into a 1.8 percentage-point change in Singapore’s GDP, Mr. Wilson said. A one percentage-point change in China’s growth produces only a 1.4 percentage-point change in Singapore GDP, Mr. Wilson said.
“We believe the low point in Singapore’s growth profile is now in place and look for a more constructive external backdrop for growth, underpinned by final demand from the U.S. and Japan over the coming quarters,” Mr. Wilson wrote in a research note.
Also Tuesday, the Monetary Authority of Singapore kept its monetary policy unchanged, targeting a gradual strengthening of the local currency. Its existing policy, which it said balances between uncertainties in external demand and rising domestic inflationary pressures, remains “appropriate,” the central bank said.
The MAS highlighted risks from the fiscal impasse in the U.S. and potentially disorderly market adjustments when the Federal Reserve eventually scales back its economic stimulus. However, it noted that U.S. labor and housing markets are improving and that Japan is doggedly pursuing growth, improving the outlook for developed economies.
“The key focus for the MAS remains on the tight labor market, which will remain tight in the next two to three years,” said Michael Wan, an economist with Credit Suisse in Singapore.
Central Bank Stands Pat as Singapore Economy Strengthens
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