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Singapore. Singapore’s trade-driven economy contracted in the last three months of 2011, signalling it may slip into a technical recession as a slump in manufacturing output and slowdown in external demand hurt exports.

The contraction, however, is unlikely to bring about a change in monetary policy which leans towards a gradual and modest appreciation of the Singapore dollar, most economists said.

Advance estimates showed gross domestic product (GDP) fell 4.9 percent in the fourth quarter compared with the July-September period on a seasonally adjusted, annualized rate. Manufacturing output plunged 21.7 percent quarter-on-quarter, the trade ministry said on Tuesday.

“The case for further MAS [Monetary Authority of Singapore] easing in April is less clear cut than in past recessions,” said Citigroup economist Kit Wei Zheng, noting inflation remains elevated while the slide in GDP is relatively modest compared to past recessions.

The Southeast Asian country, whose trade is about three times its GDP, is considered a regional bellwether because of its small domestic economy and dependence on global trade and investment. Singapore reported higher-than-expected inflation figures for November even as industrial production fell, putting pressure on the government to announce new measures to contain prices and keep costs down.

Citigroup’s Kit said the government may choose to support the economy by helping businesses keep costs down when it unveils its budget in February.

“But the scale of fiscal stimulus is likely to be modest, as the government may want to conserve fiscal bullets in the first year of its term, or for the contingency that the recession deepens,” he said.

Singapore manages monetary policy by targeting the value of its dollar against an unnamed basket of currencies. In October, MAS retained its bias for a modest appreciation of the Singapore dollar, but said it would reduce the pace of increase.

Singapore narrowly averted a technical recession in the third quarter, largely because of a surge in biomedical production.

Most analysts expect the economy to continue contracting in the first quarter of 2012, resulting in a technical recession which is defined as two consecutive quarters of negative GDP.

“The outlook for 2012 remains cautious given Europe’s debt crisis, China’s slowdown and uncertainty over U.S. tax measures,” Bank of America Merrill Lynch economist Chua Hak Bin said in a note to clients. “[Our] model shows a slightly higher than even chance of a recession in first quarter 2012.”

Singapore exports most of what it manufactures to major destinations such as Europe, the United States, Japan and China, among others.

Electronics makes up for 31 percent of its manufacturing sector, which in turn accounts for about one-quarter of its GDP.

The city-state’s economy grew 1.5 percent in the third quarter on a seasonally adjusted and annualized quarter-on-quarter rate, following a contraction of 5.9 percent in April-June.

During the third quarter of 2011, rival Asian business and financial centre Hong Kong also narrowly averted a recession with quarterly growth of just 0.1 percent. Singapore’s GDP expanded 3.6 percent in the fourth quarter from a year ago, slowing from the 5.9 percent expansion in the third quarter. The fourth quarter data was in line with economists’ estimates only because GDP numbers for the first nine months were revised down.

Prime Minister Lee Hsien Loong warned in his New Year’s Day message that Europe’s debt problems were “far from solved”, and Singapore faced an uncertain external environment with growth expected at a much slower 1 percent to 3 percent in 2012.

Reuters