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Singapore's 'volatile' growth data could continue for a while

Sunday, 13 Oct 2013 | 9:05 PM ET
Nicky Loh | Bloomberg | Getty Images

Sharp swings in Singapore's growth data are likely to continue in the coming quarters due to the Southeast Asian economy's reliance on international trade and financial services, economists say.

The comments follow an advance estimate showing the city-state's economy shrank 1.0 percent on quarter in the July-September period, better than expectations for a 3.6 percent contraction, but a significant deceleration from 16.9 percent growth in the previous three months.

"I expect growth to be rather volatile. Singapore is vulnerable through trade and financial channels, I think it's going to be a bumpy recovery," Vishnu Varathan, senior economist at Mizuho Bank told CNBC on Monday.

(Read more: Why Singapore's economy looks set for a contraction)

"Looking at China's September exports, it tells us global demand is not on a steady footing yet," he added, referring to the unexpected 0.3 percent decline in the country's exports last month.

Stanchart: Continue to invest heavily in Singapore
Singapore is widely touted as the Switzerland of the East, and as Peter Sands, Group CEO of Standard Chartered told CNBC, that's why the city-state is one of bank's key markets.

Singapore's economy is closely linked to the global trade cycle with net exports accounting for around one-third of the economy's gross domestic product (GDP). The country's exports also tend to be volatile in nature, with shipments of goods such as pharmaceuticals and structures of ships fluctuating month-to-month.

"We have to see a full-fledged, sustained global recovery to see growth steadier numbers. For the past three years, we've seen strong bursts of growth followed by pullbacks in subsequent quarters," said Song Seng Wun, regional economist at CIMB Research.

In the third quarter, the deceleration in growth was partly driven by the manufacturing sector, with activity slowing in July and August due to weakness in the pharmaceutical and electronics industries. The country exports most of what it produces and the manufacturing sector accounts for around 20 percent of its GDP.

Financial services were also a drag, as equity and foreign exchange market activities fell on concerns over the Federal Reserve winding down its monetary stimulus and the threat of military intervention in Syria.

According to the Monetary Authority of Singapore (MAS), the country's de facto central bank, economic activity should resume an expansion trend in the quarters ahead as "the external environment continues to improve."

(Read more: Singapore jumps to second spot in global IPO activity)

It projects overall GDP growth will be around 2.5-3.5 percent in 2013, and is likely to remain around these levels in 2014.

The MAS kept its monetary policy stance unchanged, maintaining a "modest and gradual" appreciation of the Singapore dollar, as expected. It sets monetary policy by allowing the local currency to rise or fall against an undisclosed basket of currencies.

"Barring a significant deterioration in global demand conditions, the labor market will remain tight, and exert further upward pressures on MAS core inflation as firms pass on accumulated costs to consumer prices," the MAS said in its policy statement on Monday.

(Read more: Singapore home prices could fall 20% by 2015: Barclays)

"MAS will therefore maintain its policy of a modest and gradual appreciation of the S$NEER (Singapore dollar) policy band. There will be no change to the slope of the policy band, and the level at which it is centered," it said.

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H

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