Singapore's economy grows 1.9% on-year in second quarter
Posted: 10 July 2008 0825 hrs

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SINGAPORE: Singapore's economy grew an estimated 1.9 per cent on a year-on-year basis in the second quarter of 2008, down from the 6.9 per cent seen in the first quarter.

Statistics released by the Trade and Industry Ministry on Thursday showed that the slowdown reflected a sharp contraction in the biomedical manufacturing output.

But some economists remain positive about the sector.

"We should see some rebound in biomedicals, a repeat of what happened in Q4 when the economy contracted - similar to today - due to biomedicals, then it rebounded strongly... in Q1," said David Cohen, Director of Asian Economic Forecasting.

Fluctuations in biomedicals are due more to production schedules than global demand, so economists are less worried by the volatility than the softening in other sectors, such as construction.

Excluding the biomedical sciences (BMS) cluster, industrial production grew moderately.

The government's advance estimate showed that gross domestic product contracted 6.6 per cent on a quarter-on-quarter seasonally-adjusted basis, following an increase of 15.6 per cent in the previous quarter.

The manufacturing sector is estimated to have contracted by 5.6 per cent in the second quarter, compared with a 12.7 per cent growth in the first quarter.

The electronics cluster also registered some decline due to weakening foreign demand. However, the transport, engineering and chemicals industries continued to grow.

The construction sector is estimated to have grown by a robust 15.2 per cent in the second quarter, following a 16.9 per cent expansion in the previous quarter.

"Construction growth has been propping up GDP growth, leaving the economy vulnerable to downward shift in construction. Also concerned about FDI coming into Singapore due to strengthened Singapore dollar," said Leon Perera, Group MD of Spire Research & Consultancy.

Meanwhile, the services producing industries are estimated to have grown by 6.9 per cent in the second quarter, compared to 7.6 per cent in the preceding quarter. Growth was led by the financial services and business sectors.

Sectors such as wholesale and retail trade and transport and storage also posted healthy growth during the quarter.

The advance estimate, based largely on data in the first two months of the second quarter, gives an early indication of the economy's performance in the April-to-June period.

Some economists said the weak second quarter numbers mean that there may be little room to allow the Singapore dollar to strengthen to help rein in inflation, which now stands at a 26-year high.

They also noted that the main threat to Singapore's growth isn't domestic.

"The main threat is that higher oil prices will drag down the world economy which so far has dodged the bullet surrounding the US sub-prime financial turmoil," said Cohen.

Going forward, economists said they expect slow growth to bottom out in the third quarter, assuming that the US goes through a short and shallow downturn.

Most economists have revised downwards their full year growth forecast for Singapore to the lower end of the government's 4-6 per cent range. Some also said there's a high likelihood that the government may revise their growth forecasts downwards. - CNA/vm/ls