Singapore’s Strong GDP Growth Prompts Rise in Singapore Dollar

Singapore GDP Rebounding Prompts Faster Currency Gains

Gross domestic product rose an annualized 9.9 percent in the three months through March 31 from the previous quarter, when it dropped 2.5 percent, the Trade Ministry said today. The median of 12 estimates in a Bloomberg survey was for a 6.8 percent gain. The central bank, which uses the exchange rate to manage inflation, said it will increase “slightly” the slope of the currency trading band and raised its inflation forecast.

The Singapore dollar rose 0.4 percent to S$1.2491 against its U.S. counterpart at 1:05 p.m. local time today. It has gained 3.8 percent this year. The benchmark Straits Times Index added 0.7 percent.

The central bank also said it is restoring a narrower policy band for the currency, while maintaining a “modest and gradual appreciation.” It widened the trading band at its October 2010 policy review.

Obviously Singapore has a fairly rare situation with such limited space and a very strong economy. That leads to pressure of inflation as the wealth chases a somewhat limited supply (this is mostly focused on land – but that impacts many things). Given the large amount of international trade Singapore does one way to manage inflation is to let the Singapore dollar rise.

Many countries seek to lower the value of their currency to make it easier to compete globally. Singapore’s leaders have figured out that they wish to raise the standard of living by successfully providing very high value products and services.

Instead of seeking to compete by lowering the value of their currency they seek to increase the efficiency and effectiveness of their businesses. This is a great model. It is a challenge when businesses want easy quick fixes (decreasing the value of the currency is an easy quick fix that helps business – though it also less noticeable hurts individuals).

Singapore seems to acknowledge that their currency is going to increasing strengthen against other currencies. They just expect their businesses to improve enough to remain competitive even as this happens.

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Strong Singapore Dollar

The Singapore dollar has been very strong. This is a sign of a strong economy. But it also brings challenges for an economy when its currency appreciates. Competing against companies internationally is more difficult as those wishing to buy Singapore products and services have to pay the increased prices due to the currency appreciation. Often companies will absorb part of the currency increase but that reduce their profit (or forces them to reduce costs – which can mean layoff and reduced pay). Those making Singapore dollars though get the benefit of being able to buy more for the same price – the same S$100 buy 10% more if the currency has risen 10%.

Many countries try to devalue or at least prevent increases in value in their currency as this is often easier for politicians to do than helping move the economy to a new reality. Singapore however has taken serious steps (as you would expect, taking smart economic steps for decades is why their economy is so strong and currency has done so well) to accept that as they will have a stronger currency (especially when they see what Europe and the USA are doing – acting irresponsibly and making it hard to have faith in their currencies).

Here are some charts of the Singapore Dollar (SGD) versus other currencies over the last 12 years.

chart of the Singapor Dollar v. US Dollar 1999-2011

From 1999 to 2011 the Singapore Dollar (SGD) is up 37% v. the US Dollar. And just since January 1st of 2009 it is up 19%.

See the current SGD to USD chart on yahoo. Such a rapid accent in the currency makes it difficult for companies and individuals to react.

chart of SGD v Euro from 1999 to 2011

From 1999 to 2011 the SGD has risen 11% versus the Euro. Since January 1st of 2009 the SGD has risen 15%.

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Manchester United Said to Plan $1B Singapore IPO

Singapore’s finance sector continues to do extremely well. Singapore and Hong Kong continue to battle for Asian financial center leadership (even over Toyko and mainland China). This is a sign of Singapore’s rising financial status in a way that will catch the notice of many football fans around the globe. But it is only a visible manifestation of continued long term success in the financial community. Manchester United Said to Plan $1B Singapore IPO:

United says it’s the most-supported team in the world, with a club-sponsored survey revealing a global following of more than 330 million. The Glazers’ commercial operation, led by former J.P. Morgan banker Edward Woodward, has secured global sponsorship and licensing agreements that have led to annual revenue doubling to about 300 million pounds in six years.

The club has chosen Asia for its IPO because of its popularity in the region, one of the people said. The team has fan clubs in countries such as Thailand, Singapore and South Korea and a supporter base there of 190 million. It’s been searching for real estate in the region in an effort to boost its commercial operations.

Singapore boasts Asia’s highest concentration of millionaires and a United-themed restaurant.

Recently Singapore’s national team moved forward to the next round of World Cup qualifying with a tie of Malaysia (they beat Malaysia 4-1 earlier). Singapore’s team is ranking 131st in the world.

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