Singapore Says Economy May Expand 3% to 5% Next Year

Nov. 19 (Bloomberg) -- Singapore said its economy will expand next year after exiting the deepest recession since independence in 1965, adding to evidence of a regional recovery that’s prompted some policy makers to start removing stimulus.

The economy will grow 3 percent to 5 percent in 2010 after shrinking as much as 2.5 percent this year, the trade ministry said in a statement today. Gross domestic product climbed a revised annualized 14.2 percent last quarter from the previous three months, the second consecutive expansion, it said.

Australia and India have started to tighten monetary policy and Singapore said today it will gradually pull back stimulus measures as the world economy revives. The island’s outlook for 2010 is closely linked to global conditions and a “sluggish recovery” in demand for exports by companies such as Stats Chippac Ltd. will moderate growth prospects, the ministry said.

“Singapore’s recovery, like many other Asian economies, will be patchy,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “The policies in place and the actions taken will determine the amount of turbulence we see next year.”

The Straits Times Index rose 0.8 percent to 2,766.21 as of 10:53 a.m. local time after the government released the 2010 growth forecast. The Singapore dollar was little changed at S$1.3863 against the U.S. currency.

The Monetary Authority of Singapore said last month it will maintain a zero appreciation stance in its currency policy, refraining from further monetary easing after opting for a de- facto devaluation of the exchange rate in April to counter collapsing exports. There is no change in policy, it said today.

Inflation Forecast

Consumer prices will gain between 2.5 percent and 3.5 percent in 2010, from an earlier prediction of as much as 2 percent, the government said today, raising its inflation forecast amid higher housing values. The central bank uses its currency, rather than interest rates, to manage inflation.

Growth in Asia’s largest economies including Japan and South Korea is accelerating as companies such as Samsung Electronics Co. report surging profits. Malaysia and Thailand, which are releasing GDP figures in the next few days, are forecast by analysts to post smaller economic declines in the third quarter from a year earlier.

CapitaLand Ltd., Southeast Asia’s largest real-estate developer, said today there is “strong buying interest” in its private residential projects in Singapore while demand for its commercial properties “remains resilient.”

Unwinding Stimulus

Policy makers around the world are moving to unwind some of the emergency steps they took to counter the world recession after cutting interest rates and outlaying more than $2 trillion in government spending.

Singapore plans to gradually scale back its stimulus measures, Ravi Menon, an official at the trade ministry, told reporters today. The government, which extended a wage subsidy program for employers that was set to expire this year to avoid an increase in job losses, isn’t likely to continue the so- called Jobs Credit Scheme when it ends in June, Menon said.

Asia-Pacific leaders said last week fiscal and monetary stimulus measures need separate exit strategies and timing, as countries seek a balance between protecting nascent growth and preventing asset bubbles.

“There’s a bit of inertia among policy makers in removing stimulus, especially monetary tightening,” Varathan said. “They need to be pushed either by inflationary pressures or see convincing growth along with a better job market.”

Asset Price Watch

Policy makers in Singapore and across the region are monitoring asset prices, Ong Chong Tee, a central bank deputy managing director, said today. He said he wouldn’t characterize recent price gains as a “bubble.”

The $182 billion economy grew a revised 0.6 percent in the third quarter from a year earlier, compared with the median estimate for a 0.5 percent gain in a Bloomberg News survey of nine economists.

The island’s economy is forecast to contract this quarter from the previous three months, Menon said. The government doesn’t expect a return to recessionary conditions even as the outlook for the second half of 2010 remains uncertain, he said.

The recent rebound “reflected aggressive restocking behavior following the initial fallout of the crisis in late 2008,” he said. “This is not expected to continue. With inventories now back at more sustainable levels, we expect production to adjust to prevailing market conditions.”

Manufacturing, which accounts for about a quarter of the economy, rose 6.6 percent from a year earlier last quarter after sliding 1.1 percent in the three months through June.

Singapore raised its 2009 forecast for exports today, predicting overseas shipments may drop between 10 percent and 11 percent, less than a previous estimate of as much as 12 percent. Trade may expand between 7 percent and 9 percent in 2010, after shrinking as much as 22 percent this year, the government said.