Singapore economy performs poorly

Singapore's economy shrank at an annualised rate of 5.8 per cent in the first quarter, the weakest performance since a Sars health scare nearly two years ago and about seven times worse than market forecasts.

The seasonally adjusted fall from the previous quarter reported by the government on Monday reflected a sharp slowdown in biomedical manufacturing in Singapore, which is a key Asian base for multinational drug firms such as Pfizer Inc.

"It's clearly below expectations," said Wong Keng Siong, economist at the Bank of Tokyo-Mitsubishi.

"Construction is still very disappointing. I think second quarter growth is going to be very weak. We have 2.4 per cent growth (year-on-year) in the first quarter, if manufacturing does not recover, the likelihood is for the second quarter to show very marginal growth."

The drop in gross domestic product -- the total value of all goods and services -- compared with an annualised 0.8 per cent contraction forecast by analysts and 7.9 per cent growth in the fourth quarter of 2004.

It was the weakest quarter since the April-to-June period of 2003, when GDP shrank by an annualised 8.4 per cent during a deadly outbreak of the Severe Acute Respiratory Syndrome virus.

Economists said the figures pointed to weakness ahead in Singapore's US$110 billion ($155.43 billion) economy and added to pressure on the central bank to end its year-old tightening stance and ease policy at its semi-annual review on Tuesday.

"Broadly speaking the odds favour a change in exchange rate policy to neutral," said Sanjay Mathur, economist at UBS.

A survey of 15 analysts by Reuters conducted last week found two-thirds expect the Monetary Authority of Singapore to stick to its policy of allowing "a modest and gradual appreciation" of the trade-weighted Singapore dollar.

The MAS adopted its tightening bias last April, a move that surprised much of the market.

But the latest data could tilt the market's view towards expectations that the MAS will ease by adopting a neutral bias for the currency.

Gross domestic product was 2.4 per cent bigger in the first quarter than a year earlier, the Ministry of Trade and Industry said in its advance estimates for the quarter.

Economists had expected first quarter GDP to grow 3.5 per cent from a year earlier.

Manufacturing, which makes more than a quarter of the economy, grew 3.0 per cent in the first quarter against the same quarter a year earlier, after expanding 14.1 per cent in the October-December period.

The ministry said the slower pace was largely due to lower output from the biomedical sciences sector.

The Singapore government forecast in March that biomedical output will be flat in 2005 after growing about 40 per cent in 2004 as Singapore-based global pharmaceutical makers face pressure from generic drug firms.

An expansion in plant capacity at drug firms such as Novartis AG and Schering-Plough Corp pushed biomedical industry output to $S15.8 billion ($13.5 billion) in 2004.

The services industry, accounting for about 63 per cent of the economy, grew 3.5 per cent from a year earlier, while the weak construction sector contracted 6.5 per cent, the ministry said.

Like other Asian exporters, Singapore has benefited from demand from strong global economies and a boom in regional trade with China. But after a surge in trade-driven industrial production in the fourth quarter, global demand is softening.

The Singapore dollar weakened to 1.6561 to the US dollar from 1.6606 before the data.

The advance estimates, based on data largely from January and February, give an early indication of the economy's performance in the January-March quarter.

- REUTERS