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NEWS UPDATES 10 August 2010

Singapore’s economy up in second quarter

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Singapore's economy expanded 18.8 percent on-year in the second quarter, slower than the initial estimate of 19.3 per cent.

But the headline number is still a record for quarterly growth boosted by a broad-based recovery especially in biomedical manufacturing, electronics and tourism.

Despite the robust economic numbers in recent months, the Trade & Industry Ministry said growth is set to moderate for the rest of the year.

Manufacturing drove the growth in the second quarter led by production from the biomedical and electronics segments.

Overall, the sector expanded 44.5 percent on-year.

The construction sector grew 11.5 percent supported by an increase in public sector construction activities.

The services industries also advanced 11.2 percent in the same period.

These provided a boost to the 18.8 percent growth in Q2 GDP, a record quarterly growth.

That, in turn, lifted overall first half growth to 17.9 percent on-year, also a record since records began in 1975.

Two consecutive quarters of negative sequential growth will mean Singapore will see a technical recession.

The volatile biomedical manufacturing sector may weigh on the second half due to a high base, after the segment saw a 70 percent surge in production in the first six months.

This was due to companies churning out more higher-value products.

Observers believe this is unlikely to be repeated.

This has been reflected in the Industrial Production reading index for pharmaceuticals. In June, the reading fell to 130 from 287.

Analysts expect levels to stay at around 120 for the rest of the year, which possibly translates to a drop in value of over 60 per cent.

Leong Wai Ho, regional economist, Barclays Capital, said: “On one hand in the first half of this year, we saw a spike in pharmaceuticals output which was higher than usual.

“And this distorted growth higher. And in the second half of this year, I think we'll see the reverse happen, tail winds becoming massive headwinds.

“This is not alarming. This really reflects the switch over in the product mix in pharmaceuticals from relatively more patented drugs to generic drugs. So it's producing this large fall in output as a result.

“They're generally lower value than patented drugs. Patented drugs require more upfront royalty payments so they tend to be higher value in nature."

The Trade & Industry Ministry said one key risk on the macroeconomic front is the recovery of the US economy.

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