Prime Minister Lee Hsien Loong’s government has raised the island’s GDP forecast twice this year. Photographer: Munshi Ahmed/Bloomberg
Singapore may overtake China asAsia’s fastest-growing economy this year, increasing theattractiveness of the city state’s stocks and putting pressureon policy makers to check inflation with a stronger currency.
Gross domestic product of the Southeast Asian island willrise 10.8 percent in 2010, according to the median of 13estimates in a Bloomberg News survey before the July 14 second-quarter GDP report. By comparison, Goldman Sachs Group Inc., BNPParibas and Macquarie Group Ltd. have cut estimates for China toat most 10.1 percent in recent weeks.
An acceleration in pharmaceutical output and the opening oftwo casino resorts boosted growth in the first half, the resultof Singapore’s efforts to diversify sources of expansion beyondelectronics exports. The push to bolster services may sustainthe economy and support investment that spurred the island’sbenchmark stock index to outperform counterparts in China,Taiwan, Japan and Australia this year.
“Singapore has unique growth characteristics of its own asa function of having some new areas of growth,” said Manraj Sekhon, the London-based head of international equities atHenderson Global Investors Ltd., whose firm oversees about $94billion in assets, including shares in Singapore companies.
Henderson has “meaningful positions” in Singapore-basedcompanies such as Wilmar International Ltd., the world’s largestpalm-oil trader, and Keppel Corp., the biggest maker of shallow-water rigs, he said. Its holdings of Singaporean stocks, alsoincluding CapitaLand Ltd. and casino operator Genting SingaporePlc, are “close to the highest positions we’ve had,” he said.
Singapore’s benchmark stock index has climbed 28 percent inthe past year, more than Hong Kong’s Hang Seng and Taiwan’sTaiex, while the Shanghai benchmark has fallen 22 percent.
Faster growth may prod the Monetary Authority of Singaporeto do more at its next policy review in October, according toKit Wei Zheng, an economist at Citigroup Inc. in Singapore. Wagepressures are increasing and inflation may reach 5 percent bythe end of 2010, from 3.2 percent in May, he said.
“There are now higher odds for the MAS to tighten furtherin October via a steeper appreciation” of the Singapore dollar,he said. Citigroup, which predicts Singapore’s GDP will advance12.5 percent this year, says there are upside risks to itsforecasts and the expansion may be as much as 15 percent.
The central bank uses the Singapore dollar instead ofinterest rates to manage inflation, and on April 14 allowed arevaluation and shifted to a stance of gradual appreciation. Thecurrency rose as much as 1.2 percent on the day of the MASannouncement, before slipping the following month as Europe’sdebt crisis threatened to slow the global expansion.
Against the U.S. dollar, Singapore’s currency strengthened0.4 percent to S$1.3836 as of 4:30 p.m. local time yesterday,compared with a high for the year of S$1.3649 on April 30. Itmay advance to S$1.36 by year-end and S$1.33 at the end of 2011,according to the median forecasts in Bloomberg News surveys.
Singapore’s ties to the global economy mean it’s unlikelyto escape the impact of any renewed slowdown. Governments inEurope are embarking on austerity programs to cut budgetdeficits and households in some of the world’s largest economiesare holding back spending, clouding the outlook for the rebound.
“Some cracks are starting to show in the global economy,”said Alvin Liew, a Singapore-based economist at StandardChartered Plc. “Drugs and tourists likely boosted second-quarter growth above the first quarter but a Jekyll-Hyde yearmay see a weaker second half. Life can become veryunpredictable” if you rely on pharmaceuticals and “startdabbling in casinos,” he said.
The performance of Singapore’s pharmaceutical industry isvolatile as production swings by companies such as Sanofi-Aventis SA can cause industrial output to fluctuate.
Prime Minister Lee Hsien Loong’s government has raised theisland’s GDP forecast twice this year as tourists arrive inrecord numbers, companies increase hiring and vessels leave thecity’s ports carrying more cargo. The economic rebound hascaused inflation to accelerate as rising demand stokes home andcar prices.
Singapore is likely to become Asia’s fastest-growingeconomy this year, according to Credit Suisse Group AG andOversea-Chinese Banking Corp. Forecasts for the island’sexpansion this year range from 9.7 percent to 13 percent amongthe economists surveyed by Bloomberg.
Estimates by Goldman, BNP Paribas, Macquarie and ChinaInternational Capital Corp. for China’s 2010 growth range from9.5 percent to 10.1 percent. The government in Asia’s second-largest economy is scheduled to release second-quarter GDPfigures on July 15.
The last time Singapore’s GDP rose more than China’s was in2000, according to data compiled by the International MonetaryFund.
Singapore’s manufacturing increased an average 45 percentin the first five months of 2010, after declining an average 13percent in the same period last year. Pharmaceutical output hasat least doubled every month from March to May.