SINGAPORE, May 17 (UPI) -- Although Singapore's gross domestic product contracted again on an annual basis in the first quarter of this year, several leading indicators show that an economic recovery is under way, although unemployment will worsen further before tracking the upward swing.
On Friday, the Ministry of Trade and Industry announced that GDP shrank 1.7 percent year-on-year in the first quarter, but grew 7.7 percent on a quarterly basis, the second consecutive quarterly growth. This followed an annual contraction of 6.6 percent in the fourth quarter of last year.
The MTI's chief economist, Tan Kong Yam, said at a news conference that year-on-year GDP growth in the second quarter was likely to be "close to zero," with quarter-on-quarter growth continuing its current momentum. Tan forecast a return to annual growth in the third quarter.
On Thursday, Trade and Industry Minister George Yeo told Parliament that Singapore may achieve the upper half of the 2 percent to 4 percent growth forecast for this year if the U.S. recovery and rising global semiconductor demand are sustained.
Singapore's economy contracted by 2 percent last year, after a 10.3 percent growth in 2000.
Total demand declined for the fourth consecutive quarter, albeit at a moderated rate of 8.8 percent in the first quarter, while external demand was down by 8.7 percent, after two quarters of double-digit declines. The moderation in contraction reflected improvements in conditions among the major economies and global electronics demand, the ministry said.
The manufacturing sector saw the biggest improvement, with the year-on-year decline moderating to 3.7 percent in the first quarter, after a 19 percent decline the previous quarter.
The key electronics sector fell 13 percent in the first quarter, also an improvement on the 29 percent plunge in the fourth quarter of last year.
Commenting on the data, DBS economist Kaan Quan Hon was slightly more optimistic than Tan, saying the economy appears on target to return to positive growth in the second quarter.
GohDirect economist Song Seng Wun was also sticking to a 2.0 percent to 2.5 percent year-on-year growth forecast for the second quarter and 3.8 percent for the full year.
"There has been a very sharp and broad-based improvement in business confidence in the manufacturing, commerce and services sectors for the six months to September," Kaan said. "There have also been more reports of improving orders, rising output and an increasing willingness to invest going forward."
Several economists, including Tan, were encouraged that the composite leading index, which tracks economic activity about three quarters ahead, rose 10 percent in the first quarter, after a 4.7 percent rise in the fourth quarter of 2001.
But OCBC is keeping its GDP growth forecast at 3.5 percent, pointing that although there is upside bias to the forecast, much will depend on the performance of the second quarter.
Beyond the GDP data, the business-expectations surveys also show that business sentiments have improved further. In particular, the weighted percent of industrialists with bullish sentiments outweighs those who are apprehensive about recovery prospects for the first time since the fourth quarter of 2000.
Also released on Friday was the non-oil domestic exports, which rose a nominal 6.4 percent on the year, the first rise in 13 months.
The figure indicated a recovery for non-electronics products, such as pharmaceuticals and petrochemicals, as well as demand for electronics goods. The rise follows a 17.3 percent fall in March.
But despite those signs of economic recovery, the outlook for employment remains bleak for the time being, with Tan warning that the unemployment rate will worsen further before any improvement, because employment data lag behind GDP data by two to three quarters.
The employment bottom will occur around the first half of this year, but a lot depends on how growth develops, Tan said.
Singapore's year-end unemployment rate is expected to rise to between 5.2 percent and 5.7 percent, from a current 4.5 percent, according to the MTI data. This is slightly more optimistic than the Ministry of Manpower's projection that the unemployment rate may hit 6 percent in the second half of the year.
