Singapore said its economy will expand next year after exiting the deepest recession since independence in 1965, adding to evidence of a regional recovery that’s prompted some policy makers to start removing stimulus.

The economy will grow 3% to 5% in 2010 after shrinking as much as 2.5% this year, the trade ministry said in a statement today. Gross domestic product climbed a revised annualised 14.2% last quarter from the previous three months, the second consecutive expansion, it said.

Asia is leading the world’s recovery from its economic slump, and central banks from Australia to India have started to tighten monetary policy through interest-rate increases and other tools. Singapore, dependent upon a rebound in exports to sustain its expansion, may experience “slower and steadier” growth in the coming quarters, the central bank said last month.






“Singapore’s recovery, like many other Asian economies, will be patchy,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “The policies in place and the actions taken will determine the amount of turbulence we see next year.”

The Singapore dollar was little changed at $1.3847 against the US currency at 8:02 a.m. Consumer prices will gain between 2.5% and 3.5% in 2010, from an earlier prediction of as much as 2%, the government said today, raising its inflation forecast amid higher housing values.

UNWINDING STIMULUS
Growth in Asia’s largest economies including Japan and South Korea is accelerating as companies such as Samsung Electronics Co. report surging profits. Malaysia and Thailand, which are releasing GDP figures in the next few days, are forecast by analysts to post smaller economic declines in the third quarter from a year earlier.

Policy makers around the world are moving to unwind some of the emergency steps they took to counter the world recession after cutting interest rates and outlaying more than $2 trillion in government spending. Asia-Pacific leaders said last week fiscal and monetary stimulus measures need separate exit strategies and timing, as countries seek a balance between protecting nascent growth and preventing asset bubbles.

In Singapore, the central bank said last month it will maintain a zero appreciation stance in its currency policy, after opting for a de-facto devaluation of the Singapore dollar in April to help reverse a collapse in exports. The government also extended a wage subsidy program for employers that was set to expire this year to avoid an increase in job losses.

POLICY INERTIA
“There’s a bit of inertia among policy makers in removing stimulus, especially monetary tightening,” Varathan said. “They need to be pushed either by inflationary pressures or see convincing growth along with a better job market.”

Singapore’s $252 billion economy grew a revised 0.6% in the third quarter from a year earlier, compared with the median estimate for a 0.5% gain in a Bloomberg News survey of nine economists.

Singapore’s outlook for 2010 is “closely linked” to global conditions and a “sluggish recovery” in demand for the island’s goods will moderate growth prospects, the trade ministry said.

“Growth momentum thus far has been driven by targeted fiscal stimulus measures and inventory-cycle adjustments, but these factors are likely to taper off in the second half of 2010,” the ministry said. “Even though there are some initial signs of a recovery in private demand, the durability of the recovery remains uncertain.”

MANUFACTURING GAINS
Manufacturing, which accounts for about a quarter of the economy, rose a revised 6.6% from a year earlier last quarter, after sliding 1.1% in the three months through June. Non-oil domestic exports unexpectedly dropped 6.1% in October from a year earlier, more than economists forecast.

Singapore raised its 2009 forecast for exports today, predicting overseas shipments may drop between 10% and 11%, less than a previous estimate of as much as 12%. Trade may expand between 7% and 9% in 2010, after shrinking as much as 22% this year, the government said.

The island’s dependence on electronics and pharmaceutical exports has made it vulnerable to fluctuations in global demand and business cycles, pushing it into a deeper recession than many neighbors. Singapore aims to keep manufacturing an “integral” part of the economy as the nation seeks new strategies to help it grow faster than other advanced countries, Trade Minister Lim Hng Kiang said in an interview this month.

‘COOLING OFF’
“The October trade data confirm an anticipated cooling off in growth at the start of the fourth quarter after the torrid pace in the prior two quarters,” said Rajeev Malik, a Singapore-based regional economist at Macquarie Group Ltd. “The mind boggling volatility in the biomedical sector will remain noisy and will be a key risk to the forecast of headline GDP.”

The island’s services industry declined a revised 2.2% last quarter from a year earlier, after falling 4.9% in the previous three months. The construction industry gained a revised 12.8% as developers including Las Vegas Sands Corp. and Genting Bhd. rushed to complete their projects.

Genting, Asia’s biggest publicly traded casino operator, said it is on target to open its Singapore gambling resort in early January 2010, while Las Vegas Sands may commence its Marina Bay Sands operations in January or February.

The building industry may weaken in 2010 as the casino- resorts and other projects are completed, the central bank said last month. The opening of the two resorts will contribute to the services industry, it said.