By Shamim Adam and Shiyin Chen Feb. 19 (Bloomberg) -- Singapore raised its economic growth forecast for 2010, adding to evidence of a regional recovery that has prompted policy makers to end some stimulus measures. Gross domestic product will increase by as much as 6.5 percent in 2010, the trade ministry said in a statement today, compared with a previous prediction for growth of as much as 5 percent. The economy contracted 2 percent last year. Singapore is seeking ways to ensure its economy expands in a more sustained manner after three recessions in the past decade, with its most recent slump the worst since independence in 1965. The government is trying to boost services by allowing casino companies such as Genting Singapore Plc to operate as electronics makers move to China and other lower-cost countries. “The steady recovery in global demand has boded well for the performance of the manufacturing sector and should continue to provide the growth impetus for the sector going forward,” said Irvin Seah, an economist at DBS Bank Ltd. in Singapore. “Our view on the services sector is that it should replace the manufacturing sector this year as the key pillar of growth for the economy.” Central banks around the world are starting to raise interest rates or tighten monetary policy as the economic recovery takes hold. The Federal Reserve yesterday increased the discount rate charged to banks for direct loans by a quarter point to 0.75 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs. Monetary Policy The Monetary Authority of Singapore said in October it will maintain a zero appreciation stance in its currency policy, refraining from further monetary easing after opting for a de- facto devaluation of the exchange rate in April. Economists are still mixed about the timing of the next move by Singapore’s central bank, which reviews its currency stance twice a year, in April and October. Singapore’s monetary policy stance remains appropriate, the central bank said today. The Singapore dollar fell to S$1.4143 from S$1.4074 versus the U.S. currency as of 10:50 a.m. in Singapore. The benchmark Straits Times Index fell 1 percent to 2,740.96. “Against lingering uncertainties in the external environment, policy makers may remain cautious about the strength of the recovery in the Singapore economy this year,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore. “There may be little immediate impetus for a policy tightening come April, especially since there are few signs of stronger global inflationary pressures.” Consumer Prices Inflation will probably average between 2 percent and 3 percent this year, from a previous estimate of between 2.5 percent and 3.5 percent, the government said today. The revision is a result of a rebasing of the consumer price index, it said. The economy grew 4 percent in the fourth quarter from a year earlier, and contracted an annualized 2.8 percent from the previous three months, today’s report showed. The “global recovery that began in the third and fourth quarters of 2009 has gathered momentum and will strengthen over the first half of 2010,” the government said today. “Our view of the second half of 2010 remains unchanged from our assessment three months ago. Several factors continue to cast a shadow on the outlook for the second half of the year and going into 2011.” Singapore will probably incur a third consecutive budget deficit this year as the government unveils another expansionary spending program to boost the island’s productivity in the next decade, economists say. Finance Minister Tharman Shanmugaratnam will outlay this year’s spending plans on Feb. 22. Economic Revamp A government-appointed panel this month outlined seven proposals to restructure the economy including doubling productivity and relying less on foreign labor, a move that may increase costs for companies such as property developer CapitaLand Ltd. and oil-rig builder SembCorp Marine Ltd. Manufacturing, which accounts for about a quarter of the economy, rose 2.2 percent from a year earlier last quarter, after gaining a revised 7.6 percent in the three months through September. Non-oil domestic exports will probably gain between 10 percent and 12 percent in 2010, after shrinking 10.6 percent last year, the trade promotion agency said today. “Singapore’s heavy dependence on external demand means that its economic performance remains highly correlated with the global economic recovery,” said Alvin Liew, an economist at Standard Chartered Bank in Singapore. The island’s services industry grew a revised 4.1 percent last quarter from a year earlier, after falling a revised 2.3 percent in the previous three months. The construction industry gained 11.2 percent, compared with a revised 11.5 percent increase in the third quarter. Genting’s Resorts World Sentosa opened its casino last weekend, attracting more than 35,000 gamblers, newspaper reports say. Singapore aims to lure 17 million visitors and triple annual tourism revenue to S$30 billion by 2015. Las Vegas Sands Corp. says it may open the Marina Bay Sands casino in April. To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

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