Singapore Raises 2006 GDP Forcast to 6%

Singapore Raises 2006 GDP Forecast to as Much as 6% (Update)
Feb. 16 (Bloomberg) -- Singapore's government raised its 2006 growth forecast to as much as 6 percent after the economy expanded faster than economists expected in the fourth quarter on exports of electronics and drugs.

The prediction, released in a trade ministry report today, compares with an October estimate of as much as 5 percent and a revised 6.4 percent rate for last year. The economy expanded at a 12.5 percent annual pace in the fourth quarter, beating the 11.8 percent median forecast of 10 economists in a Bloomberg survey.

Rising demand for digital music players and cell phones is swelling orders for companies such as Stats Chippac Ltd. and supporting Asia's export-driven economies including Singapore, Taiwan and Malaysia. Prime Minister Lee Hsien Loong plans to extend tax breaks and incentives to lure S$8.5 billion ($5.2 billion) of manufacturing investment this year to sustain growth.

``The higher growth forecast for 2006 is definitely achievable,'' said Leslie Khoo, an economist at Forecast Singapore Pte, a unit of London-based economic-research company 4Cast Ltd. ``Global demand for chips and other electronic products will underpin Singapore's growth this year.''

The benchmark Straits Times Index rose 0.4 percent to 2434.66 at the 5:05 p.m. market close in Singapore. The stock market measure has risen 3.7 percent this year, after gaining 13.6 percent in 2005.

Malaysia's economic growth in 2006 may exceed the central bank's forecast of as much as 5.5 percent expansion, Reuters reported Jan. 25 citing Governor Zeti Akhtar Aziz. Taiwan's statistics bureau on Feb. 23 may raise its 2006 growth forecast from 4.08 percent, the Commercial Times reported this month.

Electronics Demand

``The outsourcing trend is continuing unabated,'' said Chief Executive Officer Tan Lay Koon at Stats Chippac, which tests and packages chips for digital music players made by companies including Sony Corp. ``People want everything on the go from handsets to Ipods.''

Singapore's exports rose about 18 percent in December from November, the fastest pace since the government began reporting seasonally adjusted data in January 1999, as pharmaceutical shipments increased almost fivefold and overseas sales of electronics rose. The government forecasts as much as 7 percent export growth this year following an 8.2 percent gain in 2005.

Today's growth figures were revised from the government's Jan. 3 estimates to include December's data and reflect a change in the base year for Singapore's national accounts from 1995 to 2000. The government on Jan. 3 estimated the economy grew at a 9.7 annual pace in the fourth quarter.

After the rebasing, Singapore's 2004 economic growth rate was revised to 8.7 percent from 8.4 percent, the report showed.

Manufacturing

From a year earlier, Singapore's S$193 billion economy expanded a revised 8.7 percent in the fourth quarter, today's report said. That was the fastest pace in six quarters.

``The main reason for the higher fourth-quarter numbers was the manufacturing sector,'' said Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore.

Manufacturing, which accounts for a quarter of Singapore's economy, gained a revised 14.2 percent in the fourth quarter from a year earlier, accelerating from 13.1 percent in the third.

Singapore-based Stats Chippac, the world's fourth-largest provider of chip-testing and packaging services, posted its first profit in six quarters in the three months to Dec. 31.

Computer Chips, Drugs

Chartered Semiconductor Manufacturing Ltd. reported its first profit in five quarters on demand for chips used in products such as Microsoft Corp.'s Xbox 360 game system. Sales almost doubled in the fourth quarter, and the Singapore-based company forecasts a profit this quarter.

Manufacturing is also expanding as government tax breaks for drugmakers prompt companies including Novartis AG and GlaxoSmithKline Plc to increase investments.

Switzerland-based Novartis last year started building a S$310 million drug production facility in Singapore. GlaxoSmithKline, Europe's biggest drugmaker, last year unveiled plans to build a S$115 million research and development facility.

Rising employment and consumer spending are also aiding economic growth.

Singapore's jobless rate fell to 2.5 percent in the fourth quarter, the lowest in 4 1/2 years. A total 110,800 jobs were added last year, the highest since 1997.

The city-state has benefited from rising travel demand, helped by a recovery in global tourism and the emergence of discount carriers in Asia.

Tourism

Singapore's visitor arrivals rose 7 percent to a record 8.94 million last year, boosting hotel revenue and retail sales.

Services gained a revised 7.2 percent from a year earlier in the fourth quarter, more than the 7 percent gain estimated on Jan. 3, today's report showed.

Steady economic growth in the U.S. and China, the second- and third-biggest markets for Singapore's exports after the European Union, should augur well for the city-state's economy, economists said.

The U.S. economy expanded 3.5 percent in 2005 and growth may average 3.4 percent this year, according to a Bloomberg survey of economists from Dec. 23 to Jan. 9. China's economy grew 9.9 percent last year. The International Monetary Fund forecasts the world economy to expand 4.3 percent in 2005 and 2006.

``If the U.S., China and the rest of the world continue to grow steadily, then the manufacturing sector should continue to do reasonably well,'' said Song Seng Wun, an economist at CIMB-GK Research Pte in Singapore, who forecasts 7.1 percent growth in Singapore this year.



To contact the reporters on this story:
Shamim Adam in Singapore sadam2@bloomberg.net;
Andrea Tan in Singapore at atan17@bloomberg.net
Last Updated: February 16, 2006 04:26 EST