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Singapore's 2Q07 GDP Surges, 2007 Growth Target May Rise

Singapore's economy expanded at its fastest pace in two years in the second quarter, boosted by strength across all sectors that will likely prompt the government to upgrade its 2007 growth forecast.

10 July 2007
SINGAPORE (Dow Jones) -- Singapore's economy expanded at its fastest pace in two years in the second quarter, boosted by strength across all sectors that will likely prompt the government to upgrade its 2007 growth forecast.

On a seasonally adjusted and annualized basis, the economy expanded 12.8% from the first quarter, after growing a revised 8.5% in the previous three months, the Ministry of Trade & Industry said in a statement Tuesday. A Dow Jones Newswires poll of economists had forecast 7.8% expansion.

Economists said the data may lead the government to revise its full-year growth target higher, and that the economy may not be decelerating from 2006.

"We'll all have to raise our forecasts," said HSBC economist Robert Prior-Wandesforde. "It can't be avoided."

The government currently forecasts growth within a range of 5% and 7%, but Prior-Wandesforde now expects full-year growth of about 8%. The economy expanded 7.9% in 2006.

Growth in the second quarter was the fastest since the second quarter of 2005, when the economy grew an adjusted and annualized 14.5% from the previous three months.

Prior-Wandesforde said that the strong growth is especially surprising in view of weakness in the small export-dependent island's electronics industry.

"The key message is just how well the Singapore economy can perform while the electronics sector is firmly in the doldrums," he said.

While electronics, which has dragged since last year, remains a burden, it was offset by a surge in drug production and continued strength in the offshore marine sector.

Manufacturing output rose 10.2% from a year earlier, faster than 4.4% growth in the first quarter.

But the manufacturing sector could still stumble in the second half, as the electronics industry remains soft and pharmaceuticals output will likely be volatile.

"Manufacturing will be pretty difficult to predict in the second half," said Chua Hak Bin, an economist at Citigroup. "It's hard to say if it will keep up with services."

Services, which makes up more than half of the economy, grew 7.0% from a year earlier, slowing slightly from 7.2% growth in the first quarter.

Before the data release, Chua forecast 6.6% full year economic growth, but he plans to revise his target and expects the government to raise its forecast to a range of 6% to 8%.

Though growth in the second half should be somewhat broad-based, the city-state remains exposed to a slowdown in the world's major economies later this year, said J.P. Morgan economist Matthew Hildebrandt.

"If exports turn out to be more sluggish than expected, the impact could spill over into the domestic economy," he said.

Measured by economic accounting, domestic demand "is the more substantial contributor" to overall growth, but "it's dependent on exports picking up," he said. "Troubles in the U.S. housing market, for example, could have a spillover impact on Singapore."


Currency Responds, But Policy May Stay
The Singapore dollar jumped slightly in response to the figures, with the greenback slipping to S$1.5170 from S$1.5200 just before the data release.

But few expect the growth figures to prompt tighter monetary policy, as the currency is believed to have room to appreciate within the confines of the central bank's secret trading band.

The Monetary Authority of Singapore uses the exchange rate as its chief policy tool, and advocates a modest and gradual appreciation of the currency.

"The Singapore dollar could pick up some momentum in the next few days, but it's not going to put policy under pressure," said a currency trader who asked not to be named.

HSBC's Prior-Wandesforde said the economy isn't so strong as to prompt cooling measures just yet.

"The currency has room to move in the band, but at this point I don't expect them to notch the currency (band) higher or consider any fiscal moves," he said.

The sizzling construction sector continued to expand, growing 17.9% from a year earlier, the fastest pace since 1997.

Construction activity was helped by an influx of immigrants, which has boosted office and residential property, and the development of two casino-resorts. Construction grew 11.6% from a year earlier in the first quarter.

But construction, which represents about 3% of the economy, won't be a key driver of overall economic growth.

From a year earlier, the economy grew 8.2% after 6.4% growth in the first quarter. The Dow Jones poll forecast on-year growth of 6.7%.

The government will release final data for the second quarter in about six weeks. Revised figures generally don't vary significantly from the advance estimates, which are largely based on the first two months of the quarter.

Bank Of Korea Revises 2007 GDP Growth Forecast Upwards
The Bank of Korea Tuesday raised its estimate of the country's economic growth in 2007 in its semiannual review of the economy, reaffirming the market expectations that the central bank will hike its key call rate target later this week to curb rising liquidity.

10 July 2007
SEOUL (Dow Jones) -- The Bank of Korea Tuesday raised its estimate of the country's economic growth in 2007 in its semiannual review of the economy, reaffirming the market expectations that the central bank will hike its key call rate target later this week to curb rising liquidity.

The BOK increased its forecast of gross domestic product growth to 4.5% from 4.4%, thanks to continued strong growth in exports and a recovery in domestic demand.

The central bank said economic growth will likely accelerate further in 2008.

But inflation will likely be lower than earlier forecast in 2007, remaining tame in the second half, but up from the first half, the central bank said.

"The local economy is expected to continue its growth rate helped by solid export growth, while domestic demand is recovering gradually," the central bank said in a statement. "Consumer prices are expected to rise on higher global raw material prices and a rise in demand-side pressure."

The economy is expected to grow 4.7% from a year earlier in the second half of this year, accelerating from 4.4% growth recorded in the first half, the Bank of Korea said.

Seasonally-adjusted GDP grew 1.4% in the April-June period from the previous quarter, the central bank said. In the same period, GDP grew 4.7% from the second quarter of 2006, it said.

GDP is expected to grow 1.2% in the second half of this year from the first half, the same growth rate as the first half. In December last year, the central bank forecast second-half GDP would gain 1.3% from the previous six months, and 4.7% from a year earlier.


Upward Revision Unsurprising
South Korean financial markets didn't react much to the BOK's revised outlook.

"Although the revision was slightly positive, the BOK expects inflation to remain tame and the GDP growth for the second half is expected to grow at the same rate as the first half" thus it isn't entirely hawkish for the market, said Yoon Yeo-Sam at Daewoo Securities.

At 0020 GMT, the yield on three-year treasury bonds was down one basis point at 5.34%, while the five-year yield was down 2 basis points at 5.45%. The stock index was nearly flat, up 0.2% at 1886.33, while the dollar was trading at KRW920.6, up from KRW920.0 at Monday's close.

Daewoo Securities' economist Go You-Sun said the BOK's revision of growth isn't a surprise as it "was not because the economy is to fare better in the second half, but because the first half exceeded expectation, which also applies to lowering of inflation forecast."

"With the Bank of Korea not expecting surprises in the second half of this year, it will go ahead with tightening Thursday," she said.

According to a poll of 13 economists by Dow Jones Newswires, eight expect a quarter percentage point rate hike this Thursday. The BOK has kept its policy rate steady since August last year when it hiked the call rate by 25 basis points to 4.50%.

The BOK expects private consumption to grow faster due to an improvement in consumer sentiment and higher personal incomes, forecasting a rise of 4.1% this year, slightly above its previous forecast of 4.0%.

Capital investment will likely grow 7.5% this year, faster than the previously-expected 6.0% rise and last year's estimated gain of 7.4%. The central bank said it raised the capital investment growth outlook because of continued economic growth and a sharp rise in demand for office equipment.

Construction investment is expected to climb 2% this year, slightly above the bank's previous forecast of 1.6%, helped by construction of new residential towns.

The BOK expects the headline consumer price index to rise 2.4% this year, slower than its previous forecast of 2.6%, while core inflation for 2007 is likely to be 2.3%, compared with the previous forecast of 2.7%.

CPI increases will be limited by stable fresh food prices in the first half, showing a 2.2% rise in the first half, but is likely to climb 2.6% in the second half on high crude oil and raw material prices, the BOK said.

The central bank said the current account will post a $2 billion surplus, matching its previous estimate. Last year, the current account surplus totaled $6 billion.

The Ministry of Finance and Economy will release its economic policy blueprint for the second half Wednesday.