SINGAPORE (Reuters) - Singapore leapt out of its worst recession and upgraded its economic outlook due to rising drugs production and construction, though analysts said it was too early for the central bank to end its accommodative policy.
The government revised up its 2009 forecast for the economy to shrink by 4 to 6 percent from a contraction of up to 9 percent, and analysts said China and other Asian exporters were also likely to report improved second-quarter growth.
But economists were cautious about the sustainability of any recovery, given that second-quarter growth was driven by a notoriously fickle pharmaceuticals industry and the outlook for demand in Western markets remained uncertain.
“This will be the first of a number of GDP reports that will show Asia is recovering after a weak first quarter,” said David Cohen of Action Economics in Singapore, pointing to China’s data this week and South Korea later this month.
“There is still a lot of uncertainty clouding the global outlook. The unemployment rate around the world is still edging higher, and the market is still nervous about how much momentum the recovery has.”
Analysts said the stronger performance might give a short-term boost to the Singapore dollar and the stock market, but said it would not change the central bank’s stance on the currency, its main monetary policy tool.
“On monetary policy, we might not see any change to it because right now it is at the level where (the central bank) can keep exports competitive,” UOB economist Chow Penn Nee said.
Singapore’s central bank, the Monetary Authority of Singapore, manages the currency against a secret basket of trade-weighted currencies and in April shifted the midpoint of this band lower. It next reviews policy in October.
The Singapore dollar traded at 1.4601/13 to the U.S. dollar by 0315 GMT, versus 1.4587 before the data. The stock market rose 1.4 percent, led by banks and property firms after the better-than-expected data.
Singapore’s gross domestic product -- or the value of all goods and services produced -- for April to June rose at a seasonally adjusted and annualised rate of 20.4 percent, versus a median forecast in a Reuters poll of 16.4 percent.
For a graphic on Singapore's GDP, please click here: here
This was the first rise after four straight quarters of contraction and the fastest growth rate since the third quarter of 2003 when the island-state recovered from the SARS outbreak.
From a year earlier, GDP fell 3.7 percent as manufacturing and services continued to contract, the data showed. That compared with market expectations for a fall of 5 percent.
“A sizeable part of Singapore’s manufacturing uptick in the first half of 2009 came from a spike in biomedical manufacturing output and electronics inventory restocking, both of which may not be sustained,” the Ministry of Trade and Industry said.
Tuesday’s data is based on performance up to May, when key non-oil exports rose a bigger-than-expected 5.6 percent from April and when drug manufacturing output more than doubled.
But non-oil exports, which make up around 60 percent of the economy, fell 10 percent in May to Europe, slid 35 percent to the U.S. and by 18 percent to China from a year earlier. June exports data is due on Friday.
“Notwithstanding the improved performance in the second quarter, the outlook for the rest of the year remains largely unchanged -- of a weak recovery susceptible to downside risks,” the Ministry of Trade said.
(Additional reporting by Kevin Lim and Saeed Azhar)