Singapore's GDP contracts 3.2 percent in fourth quarter on weak manufacturing

Singapore's economy contracted the first time in more than four years in the fourth quarter as weakness in manufacturing outweighed windfall growth from a construction boom, the government said Wednesday.

Singapore's economy shrank 3.2 percent from the third quarter on a seasonally adjusted annualized basis, the Ministry of Trade and Industry's advance estimate showed. It expanded 4.4 percent in the July-September quarter compared to the second.

A Dow Jones Newswires poll of economists had forecast a 4.2 percent rise in the final quarter of the year. The contraction marked the biggest decline since the 7.6 percent drop in the second quarter of 2003.

Singapore suffered from slower exports of drugs and electronics in the fourth quarter, and while services and construction remained healthy, manufacturers may be vulnerable to softer external demand this year.

Manufacturing output rose just 0.5 percent from a year earlier in the fourth quarter after growing 10.3 percent the previous three months. The sector expanded 5.6 percent for the full year in 2007.

Construction output rose 24.4 percent compared to the same quarter a year ago, accelerating from 19.2 percent growth in the third quarter.

Singapore's services sector was also a key growth driver in the fourth quarter, led by financial institutions and a healthy tourism industry.

The services sector grew 8.3 percent on year in the fourth quarter, matching the pace of the previous three months. For the full year, services expanded 8.1 percent.

Gross domestic product rose 6.0 percent from a year earlier, less than the 9.0 percent rise posted in the third quarter and coming in short of a poll forecast for 7.8 percent growth.

For the full year, Singapore's economy grew 7.5 percent in 2007, less than the 7.9 percent rise posted in 2006.

The downturn in the fourth quarter could cause a dilemma for the island's central bank as the risk of an economic slump precludes monetary tightening even as the island faces the highest inflation since the early 1980s.

Singapore's central bank uses foreign exchange rather than interest rates to control prices because external trade dwarfs the domestic economy.

Last October it said it would let the Singapore dollar appreciate at a faster pace to cap surging costs of imported food and energy.

The consumer price index — a non-core measure of costs for goods and services — rose 4.2 percent from a year earlier in November, the fastest pace since May 1982.