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Singapore’s economy continued to shrink in the third quarter, albeit at a slower pace than the preceding three months, data released on Wednesday showed, as the Southeast Asian country’s manufacturing sector bounced back to growth following coronavirus shutdowns.

© Singapore has been gradually lifting some of its lockdown measures to reopen its economy in recent m… Singapore has been gradually lifting some of its lockdown measures to reopen its economy in recent months and signalled it wants to slowly resume tourism and travel [File: Wallace Woon/EPA]

Meanwhile, Singapore’s central bank left its monetary policy unchanged.

Gross domestic product (GDP) fell 7 percent in July-September compared with the same period last year, an improvement from a revised 13.3 percent contraction in the second quarter, preliminary data showed. Economists polled by the Reuters news agency had expected a decline of 6.8 percent.

Singapore, whose small and open economy has been hit hard by the coronavirus pandemic, kept its expectations for GDP to shrink by 5-7 over the whole of 2020.

On a quarter-on-quarter, seasonally-adjusted basis, GDP grew by 7.9 percent, equivalent to an annualised growth rate of 35.4 percent. The bounce marked the end of a “technical recession” as it followed two preceding quarterly contractions.

But the Monetary Authority of Singapore (MAS), the central bank said that growth is expected to slow in the final quarter of this year and would remain modest in 2021, amid tepid external demand and restrictions on cross-border travel.

“The reality is that with continued prospects of anemic global demand and rising unemployment and bankruptcies at home the recovery is going to be very slow,” ING economist Prakash Sakpal said.

The country has been gradually lifting some of its lockdown measures to reopen its economy in recent months and signalled it wants to slowly resume tourism and travel.

Manufacturing expanded by 2 percent in the third quarter from the same period in 2019 after declining by 0.8 percent in the previous three months

Construction slumped 44.7 percent year-on-year in the three months through September after a 59.9 percent decline in the second quarter.

And services industries contracted by 8 percent after shrinking 13.6 percent year-on-year in the second quarter

Monetary stimulus

The MAS said its stimulatory monetary policy stance will remain appropriate for some time as the economy emerges from its coronavirus slump.

The central bank manages policy through exchange rate settings, rather than interest rates, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

“As core inflation is expected to stay low, MAS assesses that an accommodative policy stance will remain appropriate for some time,” MAS said in its semi-annual policy statement.

Analysts also said they expect the MAS to continue to keep its stimulus measures in place for the foreseeable future.

“Inflation is expected to gradually recover by 2021 and that is going to anchor expectations that MAS will keep policy setting unchanged in 2021,” said Jeff Ng, senior treasury strategist at HL Bank.

The MAS said the core inflation rate – excluding volatile items such as food and fuel costs – will average 0-1 percent in 2021, while headline inflation is forecast to be between −0.5 and 0.5 percent.

Singapore’s main price gauge contracted for the seventh consecutive month in August, with prices falling 0.3 percent from a year earlier.

The country has spent about 100 billion Singapore dollars ($73.6bn), or 20 percent of its GDP, in virus-related relief to support households and businesses as it battles its worst-ever slowdown.

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