Singapore' growth is faster than expected BUT....

Singapore Economy Grows at Faster Than Expected Pace (Update1)


By Shamim Adam

April 10 (Bloomberg) -- Singapore's economy grew more than expected in the first quarter as gains in services and construction offset easing industrial production and exports.

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.

Prime Minister Lee Hsien Loong's government is cutting corporate taxes to lure financial services companies and other businesses to spur job creation and diversify the economy. Singapore wants to reduce reliance on manufacturing and make its expansion more self-sustaining, as a slowdown in the U.S. and Europe damps demand for made-in-Asia goods.

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

From a year earlier, Singapore's $134 billion economy expanded 6 percent in the first quarter after gaining 6.6 percent in the previous three months.

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 was little changed at S$1.5127 per U.S. dollar as of 8:10 a.m. local time.

Currency Policy

The central bank kept a three-year policy of allowing a ``gradual and modest'' appreciation of its currency. The central bank said inflation will rise between 0.5 percent and 1.5 percent in 2007.

Today's economic growth figures are mainly based on data for January and February. Revised figures will be released in May, the ministry said today.

Manufacturing expanded 6.1 percent in the first quarter from a year earlier, following a 7.7 percent gain in the previous three months. Services gained 6.1 percent and construction climbed 7 percent, the report said.

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.

Slowing Trade

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.

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

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

International Enterprise, the Singapore government's trade promotion body, on Jan. 17 said it expects non-oil exports to grow between 7 percent and 9 percent this year, after gaining 8.5 percent last year. Electronic shipments may grow about 4 percent this year, International Enterprise said.

Oil Rigs

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.

The island's services industry is also expanding as employment and wage gains boost spending. The economy added a record 176,000 jobs in 2006, while wages after accounting for inflation rose 2.2 percent.

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, it predicts. Tourism spending may reach S$13.6 billion this year, from S$12.4 billion in receipts in 2006, Trade and Industry Minister Lim Hng Kiang said on Feb. 8.

The government is trying to lure more international financial services companies in a bid to develop the island as a hub from which banks and asset managers can serve clients across Asia, including India and China, as well as the Middle East. It will cut taxes from July 1 to make the city-state a more competitive place to do business.

Wealth Management

``Singapore is increasingly serving as a bridge between the Middle East and Asia,'' Second Minister for Finance Tharman Shanmugaratnam said in February. ``We are also seeing double- digit growth in funds coming here from the Middle East, for investment in Asian capital markets and real estate.''

Capital inflows have pushed the benchmark Straits Times Index to a record, increasing fees for stock broking firms and the fund management industry. Trading on the exchange reached S$3.66 billion ($2.4 billion) on Feb. 28, more than three times the daily average in 2006 and the most since Bloomberg began tracking the information in 1996.

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.

Bank loans to consumers and businesses have also risen. Total loans and advances rose 7.9 percent in February from a year ago, as borrowings for homes climbed 2.7 percent.

Property Boom

Outstanding housing loans are at a record S$63.82 billion at the end of February. Singapore's private home prices posted their biggest quarterly gain in seven years in the first three months of 2007, rising 4.6 percent.

Rising demand for private residents has prompted real estate developers to tear down old condominiums and build new ones. City Developments Ltd., Singapore's second-largest real- estate company, this month said it sold all 59 units of a condominium project in a week. It plans to start selling units in two more residential developments this quarter.

Singapore's construction companies have benefited from the residential property boom, boosting building activities. The industry is also growing as casino-resorts, theme parks and other attractions are built to attract tourists, part of the government's efforts to shift from export and manufacturing-led growth to one that is more dependent on services.

``Singapore has diversified its economy and it's probably a bit more resilient than the rest of the region,'' Varathan said.