Anyone living in Singapore has known for a while that the economy is coming back. Restaurants and bars are full, shopping centres are humming, and it’s harder to find an available taxi.
We had confirmation of that Wednesday with the release of first quarter gross domestic product data showing growth of 32.1% from the previous quarter in annualized, adjusted terms, after a 2.8% contraction in the fourth quarter of last year.
That’s the fastest growth since the data series began in 1975, and much better than economists expected (and perhaps the government, too–it has revised up its 2010 growth forecast to 7.0% to 9.0%, from 4.5% to 6.5%).
The data are good news for the rest of Asia. Singapore is first off the mark in releasing GDP for the region. It, like many of its neighbours, is a trade-dependent economy, relying heavily on its tech and pharma industries. Things are coming off a low base, but it does indicate real demand is there for Asia’s goods, especially from within the region itself.
Such readings are likely to reassure governments as they ponder how much, and how fast, to roll back some of the fiscal largesse that has been in the system for some time.
But quick growth also spells potential headaches. The Singapore data were so strong, they led the Monetary Authority of Singapore into an unprecedented double-barreled policy tightening.
The MAS shifted up its targeted trading band for the Singapore dollar and at the same time said it is now aiming for a “modest and gradual appreciation” of the currency–its main policy lever–against a basket of currencies. It previously had a neutral policy stance.
Other central banks in Asia, including India and Malaysia, have been moving also to tighten policy, while China is among those acting to mop up liquidity in targeted steps.
Things could become more complicated from here. Authorities in Asia ex-Japan are starting to grow more nervous about the inflation outlook. In Singapore, officials lifted their consumer price index growth forecast for this year to 2.5% to 3.5%, from 2.0% to 3.0% earlier.
Continuing to support growth while counteracting the effects of very loose liquidity and jumping pre-emptively on inflation will prove tricky. Authorities may not want to act too aggressively to tighten policy, but act too late and there will be even greater problems to fix down the road.
There’s also the ongoing question of China. It has been growing nicely and demand from that country has shielded many others from the worst effects of the global economic slowdown. But even officials there are warning against being too optimistic on the growth outlook going forward.