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Singapore's economy grew at a record-breaking pace in the first half of 2010, boosting Asian economic growth that is outpacing the rest of the world.
Singapore's Ministry of Trade and Industry reported yesterday (Wednesday) that gross domestic product (GDP) grew by 18.1% in the first half of the year, expanding 26% in the second quarter from the previous three months, and 19.3% in the second quarter from the same 2009 period.
The rise is the country's biggest since record-keeping began in 1975.
"We have long been bullish on Singapore's growth outlook this year. But these numbers are running well ahead of even our estimates," Frederic Neumann, regional economist at HSBC in Hong Kong, said in a note to The New York Times.
The rapid growth prompted the government to predict GDP will rise 13%-15% in 2010 – almost twice as much as the original 7%-9% estimate and four times the pace of the U.S. economy.
"Singapore will be among the fastest-growing countries not just in Asia, but the world, this year," Song Seng-Wun, a regional economist at CIMB Research Pte in Singapore, told Bloomberg. "Price pressures are already evident and we expect the central bank to be watching if inflation expectations are raised because of these numbers."
An increase in exports and tourism and a booming manufacturing sector were the main drivers of Singapore's economic expansion. A reliance on exports hurt Singapore when the financial crisis hit, causing its economy to contract 1.3% last year. But this year's increase in global demand raised the country's exports to Europe last month by 75% from the previous year.
Singapore's Asia-bound exports also increased significantly. Exports to China last month rose 39%, and exports to Japan increased by 50%. Demand is also expected to grow from Indonesia and Malaysia.
Total 2010 export growth is projected at 17%-19%, up from estimates of 15%-17% earlier this year. Growing Asia-bound exports and increased consumer spending will offset future dangers from a weak European economy.
"[D]omestic demand continues to expand briskly, which should help to offset some of the emerging weakness in export markets," said Neumann.
The country's tourism numbers have flourished after the opening of two casino resorts, one run by Genting Singapore PLC and another by Las Vegas Sands Corp. (NYSE: LVS). Prime Minister Lee Hsien Loong dropped a four-decade long ban against casinos earlier this year to help double the country's tourism revenue by 2015.
"Growth in the trade-related sectors was bolstered by healthy global trade flows, while the openings of the integrated resorts and higher visitor arrival numbers contributed to the growth in the tourism-related sectors," the trade ministry said in a statement. "The financial services sector also grew strongly, supported by increased foreign-exchange trading and domestic bank-lending activities."
Singapore's manufacturing sector also expanded 46% in the second quarter, led by biomedical production gains.
The island's solid growth numbers are indicative of the resilience Asian countries have shown during the economic recovery, while concerns continue over the Eurozone's debt woes and U.S. market volatility.
"The very strong figures highlight the strong rebound in the region that we have seen across Asia in Taiwan, Korea, China and Hong Kong," David Cohen, economist at Action Economics in Singapore, told the Financial Times.
As Asian growth continues at a rapid pace, governments are keeping inflation in check by raising interest rates and allowing for currency revaluations. South Korea and Taiwan have raised interest rates in recent weeks, and Malaysia and India's governments have both raised their interest rates three times this year.
Singapore's currency gained 0.4% today against the U.S. dollar, bringing this quarter's gain to 1.3%.
"We continue to forecast further gradual policy normalization across the region over the rest of the year, including moderate appreciation in the Singapore dollar," Brian Jackson, senior emerging markets strategist at Royal Bank of Canada (NYSE: RY) wrote in an e-mail to Bloomberg.
Singapore holds one of the most open economies in Asia, specializing in production of pharmaceuticals and electronics. Money Morning Contributing Editor Martin Hutchinson earlier this year outlined how Singapore's fast growth and economic policies serve as an economic role model for China, and investors should take notice.
There are a couple options for investors interested in becoming a part of the one of the fastest growing countries in the world.
"The problem with Singapore investments is that the Sarbanes-Oxley mess has deterred Singapore companies from obtaining New York listings, so there are now no companies with U.S. listings beyond the so-called "Pink Sheets," said Hutchinson. "If you have a broker that allows you to invest directly on the Singapore Stock Exchange, that is not a problem. For those who don't have such a broker, I recommend the iShares Trust MSCI Singapore index Exchange-Traded Fund (NYSE: EWS), which has net assets of $1.6 billion and an expense ratio of only 0.55%."
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Tags: Asia, Asia Investments, Economic Recovery, Global Economy, Singapore, U.S. Dollar