Singapore’s economy probably shrank this quarter after six months of growth as weaker manufacturing output cooled the island’s recovery from the global recession.

Gross domestic product contracted an annualised 2.1% from the previous three months, after climbing 14.2% from July to September, according to the median estimate of eight economists surveyed by Bloomberg News. The trade ministry will release the data at 8 a.m. on Jan 4.

Singapore, which predicts that a “sluggish recovery” in demand for exports by manufacturers such as Stats Chippac may moderate growth prospects in the coming months, said this week it will extend by a year measures to help companies get financing. Industrial production fell in November for the second time in three months as pharmaceutical companies reduced output.

“Given that the recovery in global trade is expected to be slow and Asian economies remain export-led, I would expect Singapore’s growth momentum to slow,” said Philip McNicholas, an economist at IDEAglobal in Singapore.

Asia’s rebound could falter as the effect of stimulus measures fade, the Asian Development Bank’s Office for Regional Economic Integration said Dec 15. The US, Asia’s largest export market, needs to prepare for a second stimulus package as there’s a “significant” chance that growth will slow in the second half of 2010, Nobel Prize-winning economist Joseph Stiglitz said Dec 21.

The global economy will experience “modest” growth next year even as “the worst is behind us,” Singapore Prime Minister Lee Hsien Loong said in a commentary written for Bloomberg News yesterday.

Recovery Intact
Manufacturing output, which accounts for about a quarter of Singapore’s economy, fell 8.2% in November from a year earlier, a report showed last week. The island’s dollar has gained about 0.3% against its US counterpart this quarter, the fourth-worst performer among 10 Asian currencies outside Japan.

The weakness in production “reiterates the risk of a post-Christmas dip in manufacturing activity,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore. “Nevertheless, the broad recovery story is still intact, and key growth drivers for 2010 are likely to be financial services and tourism-related services.”

Singapore’s $256 billion economy expanded in the six months through September from the previous quarters after a year-long contraction that marked the nation’s deepest recession since independence in 1965. Compared with a year earlier, growth resumed in the third quarter.

GDP climbed 3.8% this quarter compared with the same period in 2008, according to the median forecast of nine economists surveyed by Bloomberg News. That compares with the 0.6% increase in the three months through September.

Monetary Policy
The economy will grow 3% to 5% in 2010 after shrinking as much as 2.5% this year, the trade ministry said Nov 19. Singapore’s exports rose for the first time in 19 months in November as a slump in electronics sales eased.

Prime Minister Lee may give an estimate for the Southeast Asian nation’s 2009 economic performance in a New Year message this evening.

The opening of two casino resorts next year will help support growth, said Ling at Oversea-Chinese Banking. Genting Singapore Plc unit Resorts World Sentosa plans to open its $4.5 billion project in early 2010, and Las Vegas Sands Corp. says it may open the Marina Bay Sands in April.

The Monetary Authority of Singapore said in October it will maintain a zero appreciation stance in its currency policy, refraining from further monetary easing after opting for a de- facto devaluation of the exchange rate in April to counter collapsing exports.

“The current accommodative monetary policy stance is likely to be reconsidered at the April 2010 policy review, given the broad economic recovery and potential upside inflation risks,” said Ling. “The gradual withdrawal of fiscal stimulus measures is already happening.”