Singapore Q2 GDP contraction bad omen for Asia

SINGAPORE-Singapore's trade-dependent economy contracted 1.1 percent in the second quarter on an annualised and seasonally adjusted basis -- the latest sign that weakness in Europe and the United States has begun to affect Asia.

The wealthy Southeast Asian citystate, a major financial and business centre whose trade is more than three times its gross domestic product, is regarded as a leading indicator for Asia because of its open economy. “The disappointing data does not bode well for upcoming GDP from China and the rest of Asia,” said United Overseas Bank economist Chow Penn Nee, referring to Chinese data for the second quarter due later on Friday.

“The risks of a technical recession for Singapore have also

increased.” China's GDP data, due around 0200 GMT, is likely to show a 7.6 percent increase, which would be the slowest growth for the world's second-largest economy in more than three years.

Singapore's Ministry of Trade and Industry said the city-state's GDP shrank in the second quarter due to a 6 percent quarter-on-quarter contraction in manufacturing, which was in turn the result of a drop in biomedical production.

The ministry also revised the expansion in the first three months of 2012, trimming it to 9.4 percent on a seasonally adjusted and annualised basis from the growth of 10 percent it previously reported.

Singapore's services sector grew 0.4 percent in the second quarter from the first three months of the year at an annualised and seasonally adjusted pace, as growth in tourism offset a contraction in trade and financial services.

Economists said that contraction in trade and financial services pointed to weakness across the region. In contrast, Singapore's pharmaceutical industry tends to be highly choppy.

“Singapore's growth is quite volatile so it will really depend on the next few months,” said Moody's economist Alaistair Chan.

Economists surveyed by Reuters had given a consensus forecast of second-quarter growth of 0.3 percent quarter-on-quarter and 2.4 percent year-on-year.

The Asian Development Bank (ADB) cut its growth forecasts for developing Asia on Thursday, saying financial and economic problems in Europe and the United States had cut demand for exports. The ADB now expects growth in Asia, excluding Japan, to come in at 6.6 percent this year, down from its 6.9 percent forecast made in April. The development bank also cut its 2013 growth outlook to 7.1 percent from 7.3 percent.