UPDATE 1-Singapore faces recession risk in second half of 2010

By Nopporn Wong-Anan

SINGAPORE, Aug 10 (Reuters) - Singapore faces the risks of an annualised contraction in its economy in the second half of 2010 due to a global slowdown but remains on course to be one of the world's fastest growing countries.

The government kept its annual growth forecast for 2010 at 13 percent to 15 percent -- its strongest yearly expansion -- as demand for electronics and a surging flow of tourists will offset a fall in biomedical production due to plant maintenance shutdowns and a possible shift in output mix.

'It is possible that we could have two quarters of negative sequential growth, which would qualify as a technical recession,' Ravi Menon, permanent secretary of the Ministry of Trade and Industry, told reporters on Tuesday.

Singapore last went into recession -- defined as two straight quarters of contraction -- in 2008 when the economy shrank from the second to the last quarter.

'We see this moderation in growth as a healthy normalisation of economic activities,' said DBS economist Irvin Seah. 'And even with the growth momentum slowing down, the Singapore economy is still on track to meet our target of 15 percent growth.'

Gross domestic product in the April to June period soared 24 percent on an annualised basis, a downward revision from a 26 percent expansion estimated in July.



BEARABLE INFLATION

The economy also grew 18.8 percent in the same quarter from a year earlier, versus a 19.3 percent rise reported last month.

Despite rising prices of food, fuel and vehicles, which could push inflation to 4 percent by the end of the year, the central bank said on Tuesday the average 2010 inflation rate would stay at 'tolerable levels' of between 2.5 percent to 3.3 percent.

That means the monetary policy stance of allowing a modest and gradual appreciation in the Singapore dollar remains appropriate, said Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore.

Ong said the Singapore dollar's rise this year is in line with gains in other Asian currencies against the dollar. The Singapore dollar is up 4 percent against the U.S. dollar so far in 2010.

The central bank said it was not worried over capital flows to Singapore, viewing it as part of fund flows that reflected strong Asian economies.

Ong also said banks regularly stress-tested scenarios such as interest rate movements and exposures to stocks and property. He said Singapore banks' exposure to the property industry was well within the limit of 35 percent of their assets.

Regulators worldwide are increasingly wary about the exposure of banks to property.

China's banking regulator recently ordered banks to conduct a stress test assuming a fall in house prices of up to 60 percent, just as policies to cool the sizzling market start to bite.

(Additional reporting by Saeed Azhar and Kevin Lim; Editing by Jan Dahinten) Keywords: SINGAPORE ECONOMY/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.