Cablegate: Singapore Fourth Quarter Gdp Down, but Recovery On Track

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FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 7608
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SINGAPORE 000002

STATE PASS USTR

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV SN

SUBJECT: SINGAPORE FOURTH QUARTER GDP DOWN, BUT RECOVERY ON TRACK

REF: 09 SINGAPORE 994

1. Summary: Singapore's economy shrank 6.8 percent in the fourth
quarter of 2009 compared to the previous quarter, and recorded a 2.1
percent contraction for the year. The quarterly fall was more than
expected but is being chalked up more to a temporary decline in the
biomedical sector and a pullback from rapid expansion in production
seen during the previous two quarters, rather than as a faltering in
the economy's recovery. Most other manufacturing and services
sectors continued to show positive if moderate growth. Prospects
for 2010 are much brighter as export demand continues to recover.
Services are expected to get a boost from two massive new casinos
preparing to open early in the year. The government is expected to
continue fiscal stimulus measures in its next budget to be
introduced next month, though the central bank will likely begin to
pull back the reins on the economy as inflation concerns creep back.
End Summary.

2009 Out With a Whimper
-----------------------

2. Singapore's Ministry of Trade and Industry (MTI) released
advance estimates of fourth quarter GDP January 4 (and previewed by
the Prime Minister in a New Years Eve speech) showing a greater than
expected contraction of 6.8 percent quarter-on-quarter. Analysts
were unsurprised that the economy pulled back in the last quarter
after a blistering pace of recovery in manufacturing in the second
and third quarters (reftel) and weaker industrial production figures
in the past few months. Despite the slowdown, the quarter was up
3.5% compared to the same quarter last year when the economic crisis
began to bite. For the year the economy shrank 2.1%, one of
Singapore's worst yearly performances but far better than
predictions made earlier in the year that had ranged as low as
negative ten percent.

3. MTI pinned the decline on a sharp backsliding in manufacturing
(down 38.4%), particularly in the biomedical and transport
engineering sectors. Pharmaceutical production in Singapore is
notoriously volatile and according to JP Morgan estimates production
fell 90 percent during the last quarter. However, other
manufacturing sectors continue to show recovery, particularly
electronics which is a major source of employment in Singapore.
Services expanded moderately at 7.2% quarter-on-quarter and
construction picked up 4.3%.

2010 Prospects Looking Up
-------------------------

4. MTI did not adjust its previous forecast for 3-5% growth in
2010, but most local analysts continue to be more optimistic and see
growth hitting over 5% for the year. Singapore's exports, a sizable
part of its economy, are expected to continue an upward trend as the
rest of the world pulls out of recession. Tourism and related
services should pick up as Singapore's two new "integrated resorts",
which include hotel, convention space, entertainment areas, and most
importantly casinos, open during the first half of the year. The
next government budget due in February should also continue fiscal
stimulus measures to support the ongoing recovery.

5. Most analysts in Singapore believe the Monetary Authority of
Singapore (MAS), Singapore's central bank, is likely to begin to
pull back the reins on the economy at its next policy meeting in
April. The MAS will move back to a gradual and modest appreciation
of the Singapore dollar, making its exports less competitive while
helping to keep prices lower to guard against a potential return of
inflation. Inflation is still negative, but MAS recently revised
upward its inflation forecast to 2.5-3.5% for 2010 on the back of
predictions of higher food, energy and housing costs.

EHRENDREICH

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