Singapore economy unexpectedly contracted in the second quarter as sluggish global demand knocked the city-state’s manufacturing sector, dimming the outlook as growth in key trade partner China continues to cool.
Gross domestic product shrank 4.6% in the second quarter from the previous three months on an annualized and seasonally adjusted basis, pressured by the manufacturing sector contracting 14% on quarter, advance estimates from the Ministry of Trade and Industry showed on Tuesday, Reuters reported.
That was in sharp contrast to a revised 4.2% expansion clocked in the first quarter and well below the median forecast of 0.8% growth in a Reuters poll.
Jonathan Cavenagh, senior FX strategist for Westpac, said the poor GDP reading could stoke expectations for the Monetary Authority of Singapore to ease its exchange rate based monetary policy later this year.
Since manufacturing tends to be quite volatile, the weak GDP is not necessarily the start of a sharp downtrend in activity, he said.
“Still, with an already weak inflation backdrop, a little bit of MAS easing expectation may creep back into the market, so hard not to see USD/SGD higher on the back of this, with the 1.37 level now a reasonable upside target,” Cavenagh said.
The Singapore dollar slumped to a one-month low after the weak GDP data, falling to 1.36 versus the US dollar at one point, its lowest level since June 8.
The surprise economic contraction comes amid renewed worries about the global outlook, with Greece’s precarious finances threatening a fragile recovery in the eurozone and the recent rout in China’s stock market posing risks to already cooling growth in Asia’s economic giant.
The government is forecasting the trade-reliant economy to grow 2-4% for 2015.
