Singapore Economy Grows at Faster Than Expected Pace

Singapore Economy Grows at Faster Than Expected Pace (Update3)

By Shamim Adam

April 10 (Bloomberg) -- Singapore's economy grew faster than expected in the first quarter, buoyed by record prices for property and stocks.

Gross domestic product expanded an annualized 7.2 percent in the three months ended March, compared with a 7.9 percent pace in the previous three months, the trade ministry said today. That beat all forecasts in a Bloomberg News survey of nine economists, where the median estimate was a 4.9 percent gain.

Construction contributed most to the expansion, suggesting Singapore can weather weaker demand for its exports as the U.S. and European economies slow. Prime Minister Lee Hsien Loong, whose compensation is partly tied to growth, cut corporate taxes by 2 percentage points this year to lure financial services companies and reduce reliance on manufacturing.

``The economic structure has broadened and is more resilient because of efforts by the government to promote services,'' said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. ``We are seeing a more stable pillar of growth emerge in services. Construction was a key surprise.''

Singapore's construction industry expanded 7 percent in the first quarter from a year earlier, accelerating from 4.7 percent in the fourth quarter of 2006, according to today's report. That was the fastest pace in six years.

From a year earlier, Singapore's $134 billion economy grew 6 percent in the first quarter after gaining 6.6 percent in the previous three months. Economists were expecting 5.5 percent growth. Manufacturing and services both gained 6.1 percent, slower than the previous quarter.

Stocks at Record

The benchmark Straits Times Index is at a record high, increasing fees for stock broking firms and the fund management industry. An average 2.27 billion shares traded daily on the Singapore Exchange between January and March, compared with about 1.3 billion shares a day in the previous quarter. The index fell 0.1 percent to 3,395.64 at 11:30 a.m. local time. It reached 3,406.17 earlier today, the highest ever.

Private residences in the city-state are fetching over S$4,000 ($2,643) per square foot, boosting profits for real estate developers who are tearing down old condominiums to build new ones. Singapore's private home prices posted their biggest quarterly gain in seven years in the first three months of 2007, rising 4.6 percent.

Construction growth is accelerating as builders last quarter broke ground on one of two casino-resorts on the island- nation and a bridge which will link attractions around the area.

Las Vegas Sands Corp., the world's biggest casino-operator by market value, last year won the right to build Singapore's first gaming center, which will include Asia's biggest single venue for meetings and have 2,500 hotel rooms when ready in 2009.

Leader's Growth Bonus

The government yesterday announced salary increases for its officials, raising the prime minister's wage by 25 percent to S$3.1 million annually. One of his bonuses will be tied to the performance of the economy, with a maximum of 8 months' wages should gross domestic product rise 10 percent or more.

The government in February raised its 2007 forecast for Southeast Asia's fourth-largest economy to between 4.5 percent and 6.5 percent from a previous range of 4 percent to 6 percent. The economy expanded 7.9 percent in 2006.

Today's figures are mainly based on data for January and February. Revised numbers will be released in May.

The Monetary Authority of Singapore reaffirmed its policy of allowing the local dollar to strengthen in its twice-yearly currency review today. The Singapore dollar rose to S$1.5109 per U.S. dollar today, the highest since September 1997.

Slowing Trade

It also warned manufacturing, which accounts for a quarter of the economy, is expected to expand at a slower pace this year with the electronics industry ``likely to remain sluggish.''

Singapore's production growth slowed to a 13-month low in February, as electronics manufacturing declined for the fifth time in six months and drugs production dropped. Electronic exports fell four times in the five months to February.

The World Bank and the Asian Development Bank forecast slowing world trade and export volumes this year as demand for goods from the U.S. eases. World trade volumes may rise 7.7 percent this year, from about 10 percent in 2006, the World Bank estimates. The ADB expects global export volumes to rise 7.5 percent this year, from 9.7 percent in 2006.

Oil Rigs

``Manufacturing and exports haven't done too brilliantly in the past few months,'' said Vishnu Varathan, an economist at Forecast Singapore. ``We haven't seen the full magnitude of a downturn yet.''

Transport engineering companies have done better. Ship building and repair works and the construction of oil rigs helped boost production at shipyards of Keppel Corp. and SembCorp Marine Ltd., which have won billions of dollars of contracts as oil prices rise.

Growth will be supported by financial and business services and tourism-related industries, the central bank said today. The economy added 176,000 new jobs in 2006, and two out of every three of them were in services, the government said last month.

Singapore is counting on increasing tourist arrivals to spur spending at hotels, restaurants and department stores. The number of visitors may rise 5 percent to 10.2 million in 2007, while tourism receipts may reach S$13.6 billion, it predicts.

The government is encouraging international financial services companies to set up offices to develop the island as a hub from which banks and asset managers can serve clients across Asia, including India, China and the Middle East.

``The financial services sector has picked up the slack in manufacturing,'' Varathan said. ``The government has a lot of initiatives aimed at sharpening Singapore as a wealth management center for the region. That will give rise to an even tighter labor market.''