Singapore rebounds but Asia prospects mixed

The 15.2 percent quarter-on-quarter growth in the city-state's economy, seen as a regional bellwether, was the fastest in over two years and powered by a rebound in the manufacturing sector, which is sensitive to demand from the United States and Europe.

Analysts said a sharp slowdown in China's economy and a winding down of the massive US economic stimulus measures later this year could scupper the nascent export rebound not only for Singapore but also for other Asian economies with large export components.

"The prospects for the second half of 2013 are more uncertain as Singapore's economy is highly trade-dependent and downside risks are growing for the Chinese economy, where the manufacturing sector is showing moderating growth momentum," Rajiv Biswas, chief Asia Pacific economist at IHS Global Insight, told AFP.

He said IHS (NYSE: IHS - news) has bumped up its assessment of the risk of a hard landing, or sharp slowdown, for the Chinese economy to a 25 percent probability from 20 percent previously.

"This downside risk would clearly pose a significant threat to the (Southeast Asian) growth outlook and prospects for the Singapore economy," he said.

Analysts from OCBC Bank said "downside risks from a disorderly market adjustment" to a tapering off by the US Federal Reserve of stimulus measures and a sharper-than-expected China slowdown remain "on the cards".

Some analysts believe the Fed will taper off its $85 billion-a-month stimulus drive, known as quantitative easing (QE), later this year amid signs of improvement in the world's biggest economy.

Fed chief Ben Bernanke, however, has said the stimulus would be kept in place "for the foreseeable future".

Singapore's manufacturing sector, which had been slumping because of week demand, soared 37.6 percent from the previous quarter, reversing a 12.7 percent fall in the preceding three months.

"The sharp rebound largely reflected the strong growth in the output of the biomedical and electronics clusters," the trade ministry said in a statement.

As with other Asian economies, Singapore exports had suffered after US and European demand dived, but its neighbours have bigger domestic bases, which have helped take up the slack.

United Overseas Bank (UOB (SES: E1:U11.SI - news) ) analysts were more optimistic than others, saying second-quarter growth "supports our positive outlook for a cyclical recovery in Singapore's externally-oriented industries".

Compared with a year ago, global macroeconomic conditions have "become more stabilised" as the US economy begins a slow recovery and the risks from debt-stricken eurozone countries have eased, they added.

"As such, we believe the healthy domestic demand in Asia will continue to prop up regional prospects in the second half of this year, and spilling over into 2014," they said.

But OCBC pointed to weakness in the forward-looking purchasing managers' index (PMI) for the region, especially in China where the benchmark hit a nine-month low in June.

China is expected to release its second quarter GDP figures on Monday, and a poll of analysts by AFP showed the giant economy is expected to expand 7.5 percent, down from 7.7 percent in the first quarter.

OCBC also noted the International MonetaNike Air Max 720