(Adds economists’ comments)
By Kevin Lim
SINGAPORE, Jan 2 (Reuters) - Singapore’s economy grew in the last three months of 2012, avoiding an expected recession as services put in a strong showing and gross domestic product (GDP) data for the first three quarters was revised downwards.
Singapore, whose trade is around three times GDP, has been badly hit by the weakness in Western economies that has crimped demand for many of its exports. The Southeast Asian city-state’s electronic manufacturers have also failed to tap surging demand for smartphones, unlike rivals in South Korea and Taiwan.
But while manufacturing contracted at a faster pace in the fourth quarter from July-September, services rebounded by growing 7.0 percent in the fourth quarter from the third quarter at a seasonally adjusted and annualised rate. The sector had contracted by 3.9 percent in the third quarter.
“The momentum in service sector activity is, of course, not spectacular, but there are at least traces of evidence that conditions are gradually improving, partly on the back of the easing in global financial tensions in recent months,” said HSBC’s chief economist for India and Southeast Asia Leif Eskesen.
Singapore’s GDP expanded by an annualised 1.8 percent in the fourth quarter from the third quarter after seasonal adjustments, advanced estimates from the Ministry of Trade and Industry showed on Wednesday, reversing a larger than earlier reported 6.3 percent contraction in the July-September period.
From a year ago, Singapore grew by 1.1 percent in the fourth quarter, bringing growth for 2012 to 1.2 percent, down from 4.9 percent in 2011. The government had in November predicted full-year economic growth of around 1.5 percent.
The surprise growth in GDP during the fourth quarter was primarily due to downward revisions to data for the first nine months of 2012.
The government had previously said GDP contracted by 5.9 percent in the third quarter at a seasonally adjusted and annualised rate. Second quarter GDP was revised downwards to show growth of 0.2 percent versus the earlier-reported 0.5 percent expansion, while first quarter GDP growth was cut to 9.5 percent from an earlier 10.1 percent.
Manufacturing contributes to a quarter of Singapore’s GDP while services account for about two-thirds of economic activity.
Most economists had forecast that Singapore’s economy would contract in the fourth quarter, sinking into recession like Japan, but their estimates were based on earlier numbers.
Singapore narrowly avoided a recession in the third quarter, when second quarter growth was revised to slow a slight expansion instead of a contraction, surprising forecasters.
Singapore was the best-performing market in South East Asia on Wednesday rising 1.2 percent, but traders attributed the rise in to relief over the U.S. fiscal cliff being averted and investors buying into blue chip stocks that had lagged last year’s rally when the Straits Times index rose 19 percent.
According to the advance GDP numbers, Singapore’s manufacturing sector shrank 10.8 percent sequentially in the fourth quarter on an annualised and seasonally adjusted basis, worsening from the 9.9 percent contraction in the third quarter.
The ministry said the recovery in services was helped by a rebound in wholesale and retail trade and finance and insurance.
“In the near term, it’s hard to see any improvement in manufacturing... Hopefully, services can continue to provide a lift going forward,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp.
Citigroup’s Kit Wei Zheng said he remained cautious about the outlook for Singapore, amid signs of continued weakness in North Asian exports.
South Korean exports in December suffered their first annual fall in three months, the government reported earlier this week. But a purchasing managers’ index (PMI) compiled by HSBC and Markit showed manufacturing activity expanded in December for the first time in seven months, despite a fall in new export orders.
Prime Minister Lee Hsien Loong said in his New Year address on Monday that the city-state’s economy had been dampened by weakness in the United States, Europe and Japan.
“But some industries have also had difficulty hiring the workers they need to grow,” he added, alluding to government measures over the past two years to restrict the inflow of low-cost foreign workers.
Lee said Singapore’s economy is expected to grow by 1-3 percent in 2013, reiterating the government’s earlier forecast.
Singapore has been making it harder for firms to employ low-cost workers from abroad, under pressure from an increasingly assertive electorate which blamed increasing numbers of foreigners over the past decade for soaring property prices, stagnant wages as well as increasingly crowded trains and buses.
Instead of promoting growth via additional labour from abroad, the city-state is now trying to get firms to lift productivity.
Reporting by Kevin Lim; Additional reporting by Charmian Kok; Editing by Eric Meijer