Singapore: A Year of Strong Recovery

The Singapore economy has recovered strongly alongside improving global economic conditions. In the 12 months to March 2010, all of the output lost during this recession had been recovered, with GDP expanding by an average of 17% q-o-q SAAR each quarter (Chart 1). As a result, the GDP contraction for 2009 as a whole was milder than expected at -1.3% and the economy is currently on track to register a strong expansion in 2010.

Singapore’s recovery has gradually broadened and shifted to firmer foundations. In Q2 2009, alongside a surge in pharmaceutical output, the economy rebounded, driven by two transitory global forces. The first was the pickup in industrial output as firms replenished inventories which had been run down earlier, and the second was the improvement in credit and financial market conditions. These two factors largely accounted for the turnaround in Singapore’s traderelated industries and asset market activities.

Since the turn of 2010, GDP growth has further broadened away from manufacturing and other trade-related industries to other sectors in the economy such as business services. At the same time, there is increasing evidence of a return in global private demand. In Q1 2010, the local economy posted sequential growth of 38.6% q-o-q SAAR, driven by a resurgence of global demand for information technology (IT) products, as well as a resumption of tourism activities. Despite the strong cyclical upturn, there are downside risks confronting the global economy. For Singapore, the underlying support for growth for the rest of 2010 is expected to remain largely intact and economic activity is likely to be sustained at high levels. However, if the crisis in Europe worsens, financial contagion spreads and the functioning of the international credit markets becomes impaired, downside risks to global growth could intensify. Singapore’s growth could then be dampened through trade and financial markets channels.