Monetary Authority of Singapore Annual Report 2011/2012
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Singapore Experienced Slower Growth Amid the External Vulnerabilities

In 2011, the Singapore economy grew at a more moderate pace of 4.9%, following a record expansion of 14.8% in the year before. (Chart 1) Since Q2 2011, domestic economic activity slowed discernibly against a volatile backdrop marked by concerns over the Euro zone sovereign debt crisis, faltering external demand and regional supply-side shocks.

The downshift in economic activity was led by the manufacturing sector, which excluding the pharmaceutical segment, recorded three sequential quarters of contraction between Q2 and Q4 2011. The electronics sector weakened significantly owing to a confluence of supply and demand factors. The Tohoku earthquake in March 2011 disrupted regional supply chains and weighed on IT production. Even before the IT industry recovered from the ef fects of the earthquake, massive flooding in Thailand in Q4 2011 hampered the ongoing inventory destocking process. Final IT demand also remained lacklustre due to more restrained global corporate and consumer spending amidst broader economic weakness. Meanwhile, pockets of industries in the services sector continued to provide steady support to the domestic economy, underpinned by firm domestic and regional demand. For instance, the tourism-related industry saw record arrivals in 2011 on the back of strong visitor inflows from the region.

Since the turn of 2012, overall output level has recovered strongly, surpassing the peak in Q1 2011. GDP expanded by 10% q-o-q SAAR following three quarters of subdued performance, buoyed by a transitory surge in IT-related activities as the effects of earlier supply-related shocks faded. However, activity in the other key segments of the manufacturing sector remained sluggish, in turn capping growth of the trade-related services sectors.

Despite the rebound in Q1, the Singapore economy is likely to record a modest expansion for the rest of the year as structural challenges in the G3 economies continue to weigh on growth. In the absence of a robust pick up in final G3 demand, output of the trade-related cluster will remain muted. However, services industries which are dependent on domestic and regional economic conditions will provide greater support this year. GDP growth in 2012 is expected to come in at 1-3%.

Chart 1