Drugs drag Singapore out of recession

By Nopporn Wong-Anan

SINGAPORE (Reuters) - Singapore leapt out of its worst recession and upgraded its economic outlook due to rising drugs production and construction, though analysts said it was too early for the central bank to end its accommodative policy.

The government revised up its 2009 forecast for the economy to shrink by 4 to 6 percent from a contraction of up to 9 percent, and analysts said China and other Asian exporters were also likely to report improved second-quarter growth.

But economists were cautious about the sustainability of any recovery, given that second-quarter growth was driven by a notoriously fickle pharmaceuticals industry and the outlook for demand in Western markets remained uncertain.

"This will be the first of a number of GDP reports that will show Asia is recovering after a weak first quarter," said David Cohen of Action Economics in Singapore, pointing to China's data this week and South Korea later this month.

"There is still a lot of uncertainty clouding the global outlook. The unemployment rate around the world is still edging higher, and the market is still nervous about how much momentum the recovery has."

Analysts said the stronger performance might give a short-term boost to the Singapore dollar and the stock market, but said it would not change the central bank's stance on the currency, its main monetary policy tool.

"On monetary policy, we might not see any change to it because right now it is at the level where (the central bank) can keep exports competitive," UOB economist Chow Penn Nee said.

Singapore's central bank, the Monetary Authority of Singapore, manages the currency against a secret basket of trade-weighted currencies and in April shifted the midpoint of this band lower. It next reviews policy in October.