A surprise drop in Singapore factory production has raised the prospect the island's economy may shrink in the January-March quarter for the first time in nearly two years, analysts said. Factory output fell 9.8 percent in February from January, a second straight month of decline and confounding market forecasts for a rise, as electronics and drugs production faltered, government data showed on Monday. The fall could mean the economy misses a government growth target of 3 percent to 5 percent this year, some analysts said.
"It looks like we may just have a negative in the first quarter," said Suan Teck Kin, economist at OCBC Bank, who expects the economy to contract an annualised 4 percent in the first quarter from the fourth quarter, after seasonal adjustment.
Singapore's $110 billion economy has shown robust growth since the middle of 2003, with the latest official figures showing annualised growth of 7.9 percent in the fourth quarter.
The last time the economy shrank on an annualised quarterly basis was in the second quarter of 2003 during the height of the Severe Acute Respiratory Syndrome outbreak.
"The fact that manufacturing output barely grew in the first two months of the year means that we have to go back to the drawing board in terms of our GDP estimates," said Song Seng Wun, economist at G.K. Goh.
"First-quarter GDP growth is likely to be weaker than we expected, and could fall outside the 3 to 5 percent growth projection that the government has made for the full year."
The economy expanded 8.4 percent last year.
The Ministry of Trade and Industry is due to publish GDP estimates for the first quarter on or before April 12. The central bank usually releases its bi-annual monetary policy review around the same time.
Despite the risks of slower economic growth, the central bank was likely to stick to a tightening bias in monetary policy as it tried to curb oil price-induced inflation, analysts said.
The Monetary Authority of Singapore (MAS), the city-state's central bank, tightened monetary policy in April last year in a surprise move to head off inflation as the trade-driven economy expanded rapidly after the Sars virus outbreak.
Analysts said the MAS was unlikely to change its policy for "a modest and gradual appreciation" of the Singapore dollar.
"We'll hold to our view that they will maintain the stance despite the worse-than-expected figures," said Chua Hak Bin, economist at DBS Bank, noting that oil prices were still high.
Singapore's MAS conducts monetary policy by steering the local currency within a band measured against a basket of currencies of its major trading partners.
Analysts said they expected the MAS to lower its inflation outlook - of between 1 percent to 2 percent this year over 2004 - after rebasing the consumer price index last week.
But while growth was slowing against a backdrop of benign inflation, Singapore, like other Asian countries, is under pressure to allow its currency to strengthen. "There's pressure on China to revalue and on our side we have to be prepared to do a similar thing," OCBC's Suan said.