Singapore’s economy expanded more than initially estimated last quarter as manufacturing and services improved, reinforcing the nation’s emergence from its worst recession since independence 44 years ago.

 

Gross domestic product gained an annualized 20.7% last quarter from the previous three months, after shrinking a revised 12.2% between January and March, the trade ministry said today. Second-quarter growth was more than a July estimate of 20.4%. The median forecast in a Bloomberg survey was for a 19.2% gain.

 

Singapore raised its 2009 forecast for exports today, predicting overseas shipments may drop between 10% and 12%, less than a previous estimate of as much as 13%. Governments worldwide have pledged about $2 trillion (S$2.89 trillion) in stimulus to counter the global recession, helping stabilize sales by Asian companies including Frasers Centrepoint.

 

“Given increasing signs of stabilization in the global economy and improvements in the region, together with the help of the government’s fiscal package, we think the recovery is likely to be sustained in Singapore,” said Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore. “It might be somewhat bumpy.”

 

The Straits Times Index rose 1.2% to 2,578.82 as of 10:32 a.m. local time. The Singapore dollar was little changed at $1.4454 against the U.S. currency.

EXPORT IMPROVE

Asian nations from China to Malaysia have reported smaller declines in exports as the slump in demand eases. China’s economy grew 7.9% last quarter from a year earlier, while South Korea’s expanded at the fastest pace in almost six years from the previous three months.

 

Singapore’s economy is “now in a stronger position,” Prime Minister Lee Hsien Loong said last week.

 

“We are expecting a better second half for Singapore,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. “The global outlook is improving and there is some return in demand.”

 

Singapore’s $182 billion economy contracted a revised 3.5% last quarter from a year earlier. That compares with the 4% decline predicted by economists in a Bloomberg News survey and was better than the government’s July estimate.

 

The economy is recovering after contracting 6.5% in the first half of 2009 from a year earlier, a decline that was “less bad than we feared,” Lee said Aug. 8. Singapore’s economy is past the worst of the recession and has probably bottomed out, the trade ministry said today.

 

“More green shoots have appeared since the last update, possibly creating a positive feedback loop for recovery,” Ravi Menon, an official at the trade ministry, told reporters today. Any “recovery will be neither quick nor strong.”

 

Singapore raised its 2009 economic forecast on July 14, after the manufacturing industry posted its best performance in five quarters in the three months to June. The government expects the economy to shrink between 4% and 6% this year, compared with a contraction of as much as 9% predicted earlier.

 

The surge in second-quarter growth may have been “exceptional” and isn’t necessarily “indicative” of the performance in the second half of the year, Menon said.

 

It is still “too early to celebrate,” Lee said last week. “The outlook remains clouded. The advanced economies are not expected to bounce back soon.”

 

It is prudent to keep liquidity in financial systems at higher-than-normal prevailing levels at this stage of the recovery from the global crisis, Ong Chong Tee, a central bank deputy managing director, said at a press briefing today. The normalization of liquidity levels will come later and central banks around the world will remain vigilant as they balance growth prospects and inflation risks, he said.

 

Manufacturing, which accounts for a quarter of Singapore’s economy, fell a revised 2.4% from a year earlier, after sliding a revised 24.1% in the three months ended March.

 

The government said today the “spikes” in drugs and electronics output last quarter may not persist to the same degree, and indicators of final demand remain weak. Exports have dropped for 14 consecutive months, while industrial production fell for the first time in three months in June.

 

“We might see another wave of retrenchments later in the year,” Lee said last week. “We must stay on guard for more challenges to come.”

 

Seagate Technology, the world’s largest maker of hard- disk drives, said this month it will close one of its factories in Singapore by the end of 2010, affecting as many as 2,000 employees. Singapore’s economy lost 18,600 jobs in the first half of 2009.

 

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