Tuesday, July 10, 2007

Singapore Booming

Bloomberg Today:

Singapore Economy Grows at Fastest Pace in Two Years

uly 10 (Bloomberg) -- Singapore's economy grew at the fastest pace in two years as soaring demand for apartments and offices spurred construction. Stocks surged to a record.

Gross domestic product expanded an annualized 12.8 percent in the three months ended June, up from a revised 8.5 percent in the first quarter, the trade ministry said today. Growth exceeded all forecasts in a Bloomberg News survey, where the median estimate was a 7.7 percent gain.

Construction increased the most in a decade, reflecting success in attracting companies including Citigroup Inc. and Daiwa Securities Group Inc. to expand operations or set up new ones. Singapore's prime office rents have gained more than three times as fast as in rival hubs Hong Kong and Tokyo, while investors are paying record prices for luxury apartments.

``There's no end in sight to the construction recovery and the services sector will continue to grow,'' said Robert Prior- Wandesforde, a Singapore-based economist at HSBC Holdings Plc. ``We can expect strong numbers ahead.''

HSBC will raise its 2007 growth forecast for Singapore from its 6.3 percent prediction now, Prior-Wandesforde said. CIMB-GK Securities Pte's regional economist Song Seng Wun increased his estimate to 7.5 percent, from 6.6 percent.

The benchmark Straits Times Index rose 0.4 percent to 3,640.77 as of 10:40 a.m. local time, after gained as much as 0.7 percent earlier. The Singapore dollar climbed 0.1 percent to S$1.5175 from S$1.5192 in Asia yesterday, trading close to an eight-week high.

Fastest Since 1997

The construction industry in Singapore expanded 17.9 percent in the second quarter from a year ago, a pace not seen since 1997. Building activity accelerated from 11.6 percent in the first three months of 2007, according to today's report.

From a year earlier, Singapore's $134 billion economy grew 8.2 percent in the second quarter after gaining a revised 6.4 percent in the previous three months. Economists were expecting 6.7 percent growth.

Private residences in the city-state are fetching more than S$5,000 ($3,296) per square foot, boosting profits for real estate developers who are tearing down old condominiums to make way for new ones. Singapore's private home prices posted their biggest quarterly gain in almost eight years in the period ended June, rising 7.9 percent.

Construction growth is also accelerating as aging office buildings are demolished and existing ones are revamped to maximize space as vacancies drop to the lowest in over a decade.

`More Favorable'

Space is becoming scarce as investment banks and insurers expand operations on the island, lured by corporate tax cuts aimed at financial services companies as manufacturers shift jobs to lower-cost countries like China.

``Demand is largely driven by financial institutions which are expanding their presence here,'' said Greg Johnson, the Singapore-based commercial department manager at real estate consultant Colliers International. ``Singapore is more favorable than Hong Kong in terms of quality of life, ease of setting up a business and rental overheads. Demand will outstrip new supply until 2010.''

Services grew 7 percent from a year earlier, and manufacturing climbed 10.2 percent, more than twice the pace in the first quarter, the trade ministry said.

Today's figures are mainly based on data for April and May. Revised numbers will be released in August.

Private Equity

There are 380 banks, insurance companies and asset managers operating in Singapore now, up from 344 such institutions at the end of March 2006, according to the central bank. Daiwa, Japan's second-largest securities firm, last month said it plans to open a Singapore branch to start private equity investments in Asia outside Japan.

The government is encouraging financial services companies to set up offices to develop the island as a hub from which banks and asset managers can serve clients across Asia, including India, China and the Middle East.

``The property and financial services sectors are feeding off each other's successes and powering the economy's expansion,'' said Vishnu Varathan, an economist at Forecast Singapore. ``The wealth generated is saturating the stock market and we are bullish on the outlook for growth.''

Investments held by portfolio managers in the city-state rose 24 percent to almost S$891 billion in 2006. The 190 hedge funds in Singapore managed more than S$40 billion of assets, a 150 percent increase from a year earlier, the central bank said on July 4.

Pharmaceuticals, Electronics

The island's manufacturing industry also contributed more to last quarter's expansion, as greater output gains from drugs and transport engineering companies limited a slump in electronics production. Shipments of electronics such as semiconductors, disk drives and telecommunications equipment have fallen in seven of the eight months ended May, the worst performance since June 2002.

The economy this year will probably grow at the higher end of the government's 5 percent to 7 percent forecast, spurred by property transactions, and financial and tourism-related industries, and as overseas demand for electronics improves, economists say.

``The outlook for electronics output and exports in the second half is brighter,'' Varathan said. ``That will add more positively to growth for the rest of the year.''

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