Singapore’s economy probably cooled after a record first-half expansion as manufacturing growth eased, reducing pressure on the central bank to allow a faster pace of currency appreciation.
Gross domestic product growth slowed to 10.8 percent in the three months ended Sept. 30 from a year earlier, from 18.8 percent in the second quarter, according to the median estimate of 24 economists surveyed by Bloomberg. The economy shrank an annualized 15.7 percent from the previous three months, after expanding 24 percent in the April-to-June period, the median of 19 estimates showed. The data is due at 8 a.m. tomorrow.
Japan has taken steps in the past month to cool gains in the yen and China has restrained the yuan’s advance, making it harder for Singaporean exporters to compete with regional rivals. Forgoing a faster appreciation in the island’s currency may help support overseas sales by companies including Hi-P International Ltd. amid signs global growth is slowing.
“There is little impetus for the central bank to act” as Singapore’s economic momentum moderates, said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “Monetary tightening, capacity constraints and to a lesser degree, withdrawal of fiscal support, will soon bring growth down to a slower but more sustainable level across the region.”
The Singapore dollar has gained 7.2 percent against the U.S. currency this year, making it the third-best performer in Asia excluding Japan.
Balancing Risks
The Monetary Authority of Singapore, which uses the currency rather than a benchmark interest rate as its main tool to manage inflation, will refrain from allowing faster gains at tomorrow’s twice-yearly review, according to 13 out of 14 economists in a Bloomberg survey.
At its April monetary policy review, the central bank said it would shift the Singapore dollar to a stronger range to trade in and allow a gradual appreciation.
The Asian Development Bank said last month governments in the region should sustain their economic expansion by refraining from tightening fiscal and monetary policies “too quickly.” The Bank of Japan on Oct. 5 unexpectedly cut its benchmark rate for the first time since 2008, while Australia and Indonesia left their key rates unchanged on the same day.
Singapore’s manufacturing increased in August by less than a sixth of the pace in April, when the MAS tightened its policy. The International Monetary Fund last week lowered its 2011 forecast for world growth, citing high unemployment, public debt and fragile banking systems as risks.
Europe, U.S.
Europe’s services and manufacturing industries grew at a slower pace while the U.S. Institute for Supply Management’s factory index fell to a 10-month low in September.
Singapore’s economy is still likely to grow within the government’s forecast range of 13 percent to 15 percent this year, even after the slowdown in the third quarter, said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. That pace would put Singapore in the running to be the world’s fastest-growing nation in 2010, after a record 17.9 percent expansion in the first half.
“The economic upswing is just slowing to a pace that is more normal and can be sustained in 2011,” Varathan said. “Exports and manufacturing growth will inevitably ease further in the coming quarters but the pick-up in the services sector should stay rapid.”
Lure of Casinos
Singapore’s services industry may support the economy as the two casino resorts opened by Genting Singapore Plc and Las Vegas Sands Corp. this year attract tourists. More financial companies are also setting up offices in the city amid government efforts to make the nation a hub from which banks and asset managers can serve clients across Asia and the Middle East.
New York-based buyout and hedge-fund firm Fortress Investment Group LLC, which managed $41.7 billion as of June 30, will have an investment team of about 10 people in its new office in Singapore, according to Adam Levinson, its co-chief investment officer of global macro funds. Levinson will also move to Singapore to lead the company’s expansion in Asia.
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