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UPDATE 2-Singapore's weak Aug output raises recession risk
September 26, 2012 / 9:32 AM / 5 years ago

UPDATE 2-Singapore's weak Aug output raises recession risk

* Aug output -2.2 pct y/y vs consensus +1.1 pct

* Aug output -2.3 pct m/m s/adj vs consensus of 0 pct

* MAS seen loosening policy in Oct by slowing SGD rise (Adds details, economists’ comments)

By Kevin Lim

SINGAPORE, Sept 26 (Reuters) - Singapore’s industrial production unexpectedly contracted in August from a year ago, suggesting that the trade reliant economy will slip into recession this quarter, and raising the odds of monetary easing by the central bank next month.

Singapore, with a population of just 5.2 million, is one of the world’s most open economies with total trade that is three times its gross domestic product.

It could become the first country in Asia to suffer from recession as other export-oriented economies, with the exception of Hong Kong, have managed expansion in the second quarter, despite flagging demand in the West.

“With this weak manufacturing print, the high likelihood of a technical recession, and falling core inflation, we think the conditions are right for the central bank to ease the pace of appreciation of its trade-weighted exchange rate band,” Credit Suisse economist Michael Wan said in a note to client.

The Monetary Authority of Singapore (MAS), which manages monetary policy by guiding the value of the local dollar against a basket of other currencies, has set the local unit on a path of gradual appreciation to tackle inflation, which is starting to come off.

Credit Suisse said it expected MAS to ease the pace of appreciation of the Singapore dollar to 1-2 percent per annum from the current pace of 2-3 percent as the focus shifts to growth.

The monetary authority issues its next half-yearly policy statement in the week ending Oct 12.

The island’s Economic Development Board said on Wednesday industrial production fell 2.2 percent last month from a year ago, dragged down by slumping demand for electronics, which accounts for about one-third of manufacturing.

On a seasonally adjusted basis, industrial output declined by 2.3 percent in August from July when it fell a revised 8.7 percent month-on-month.

Economists polled by Reuters had expected industrial production to rise 1.1 percent year-on-year but stay unchanged month-on-month after seasonal adjustments.

The U.S. dollar rose against the Singapore dollar following the release of the data, and is currently around S$1.2320 compared with S$1.2305 in early trade. The local unit has gained 5.3 percent against the dollar so far this year, outperforming most Asian currencies.

“Unless we see industrial production rebound by at least 6 percent year-on-year in September, Singapore will probably fall into a recession in the third quarter,” said CIMB regional economist Song Seng Wun.

Gross domestic product contracted 0.7 percent in the second quarter on an annualised and seasonally adjusted quarter-on-quarter basis as manufacturing and services both shrank.

The weak data comes amid signs of weakness elsewhere in the region, with Thailand’s central bank saying on Wednesday it plans to lower slightly its export growth forecast of 7 percent for this year because the global slowdown is hurting demand.


Singapore’s industrial production is difficult to predict because pharmaceuticals and oil rigs tend to be highly volatile from month to month.

Song said while the drop in marine and offshore engineering output was “computational”, given the strong order books of rig builders Keppel Corp and Sembcorp Marine, the electronics sector faced serious difficulties.

Output from the electronics cluster fell 7.3 percent year-on-year while the marine and offshore engineering segment, which includes oil rigs, contracted 27.2 percent.

Chua Hak Bin, Southeast Asia economist at Bank of America Merrill Lynch, said that besides manufacturing, financial services and wholesale and retail probably contracted this quarter as well on a year-on-year basis.

Manufacturing accounts for about one quarter of Singapore’s GDP while financial services contribute another 12 percent.

“We see the government possibly stepping in to provide some support for growth via fiscal measures, if the recession deepens,” Chua said.

On Monday, the city-state reported inflation slowed to its lowest level in nearly two years in August. The 3.9 percent year-on-year increase in last month’s consumer price index was, however, higher than the forecasts of most economists. (Reporting by Kevin Lim; Additional reporting by Eveline Danubrata; Editing by Sanjeev Miglani)

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