TRANSPORT & COMMUNICATIONS continued to ease, growing by 4.8% in 1Q05, compared to 6.3% in 4Q04. With the exception of the sea segment, all segments turned in weaker performances in 1Q05. The moderation of growth was most evident in the air segment, as air passengers and air cargo expanded at a slower pace. On a similar note, expansion within the communications segment eased in 1Q05 because of a fall in the number of Internet subscribers and slower growth in broadband subscribers. Meanwhile, the continued expansion of container throughput and sea cargo lent impetus to the strong growth of the sea segment.

THE FINANCIAL SERVICES SECTOR grew by 2.0% in 1Q05, faster than the 0.4% recorded in 4Q04. Growth was driven by the continued strength of the offshore banking segment, as both inter-bank and non-bank loans were sustained at high levels. At the same time, trading activity in the foreign exchange market surged to new highs. Meanwhile, transaction activity in the domestic stock market, while having shown signs of picking up, nevertheless remained considerably below the levels seen in the first quarter of 2004. Insurance activities also weakened in 1Q05, on the back of softening demand in the key life insurance segment.

THE BUSINESS SERVICES SECTOR expanded at a slower rate of 2.1% in 1Q05, compared to the 2.3% gain in 4Q04. Growth of the sector was dragged down by the decline in the real estate segment. This was partially offset by the strong growth of architectural and engineering services, Legal and accounting services also registered higher growth rates. The growth of the business services sector was also supported by the continued sterling performance of business representative offices and IT and related services, even though they grew at a slower pace compared to 4Q04.

Labour Market

Employment gains moderated in 1Q05 amid a slowdown in economic growth. Total employment increased by 11,600, lower than the 32,700 job gains in 4Q04. In tandem with the slowdown in employment growth, the seasonally adjusted overall unemployment rate rose slightly from 3.7% in December 2004 to 3.9% in March 2005. Nevertheless, the unemployment rate in March 2005 was still lower compared to the overall unemployment rate of 4.5% in March 2004. On a similar note, the number of workers retrenched in 1Q05 dropped to 2,000, a reduction of 38% from the previous quarter or about a one-third reduction from the numbers reported in the first quarter of last year.

Labour Productivity

Overall productivity fell 0.8% in 1Q05, reversing the 3.4% gain in the previous quarter. The construction sector suffered the largest fall in labour productivity, declining by 5.1%. Financial and business services also recorded declines of 4.3% and 4.2%, respectively. On a similar note, manufacturing productivity contracted by 2.7%, after climbing 7.3% in 4Q04. Meanwhile, the largest gains in labour productivity were registered by wholesale and retail trade (3.6%) and transport and communications (2.7%).

Business Costs

The overall unit labour cost (ULC) posted the second consecutive increase of 3.4% in 1Q05, after climbing 1.5% in 4Q04.

Unit business costs in the manufacturing sector posted its first quarterly gain in seven quarters, rising 3.1% in 1Q05. This was due mainly to an increase in manufacturing ULC, which rose by 6.6%, reversing the decline of 5.8% in the previous quarter.

External Trade

Singapore’s external trade rose by 11.3% in 1Q05, moderating from the18.1% growth in 4Q04. Growthof total exports slowed to 10.7%, after a 17.5% increase in the previous quarter. Both domestic exports and re-exports expanded at a slower pace. Domestic exports grew 11.3% while re-exports increased by 10.0%. Similarly, the rate of growth of non-oil imports (excluding aircraft and ships) dropped to 7.6% in 1Q05, after expanding by 14.4% in 4Q04.

Investment Commitments

Fixed-asset investments amountingto $1.8 billion were committed in the manufacturing sector in 1Q05. When these commitments are realised, they will create a value added of $0.8 billion and generate almost 3,000jobs of which 45% are for skilled workers.Investment commitments in theservices sector promoted by EDB amounted to $678 million in total business spending in 1Q05. When these commitments are implemented, they will generate a value added of $1.6 billion and create about 3,000 jobs of which 74% are for skilled workers.

Balance of Payments

The current account surplus fell from $13.1 billion in 4Q04 to $11.7 billion in 1Q05, mainly due to a fall in the goods account surplus. Net income outflows decreased from $1.5 billion to $0.3 billion in 1Q05. The net outflow in the capital and financial account rose to $8.1 billion, from $2.9 billion in the previous quarter. Singapore’s overall balance of payments turned in a smaller surplus of $4.8 billion in 1Q05, compared to $8.7 billion in 4Q04.

Consumer Price Inflation

On a year-on-year basis, CPI increase eased to 0.3% in 1Q05, from 1.7% in 4Q04. The cost of transport and communications registered a decline of 2.4%. Meanwhile, price indices of the other major categories of consumer items registered small gains. Education costs increased by 1.9% while food prices rose by 1.6%. Cost of items in the recreation and others category also increased 0.8%. Similarly, the cost of clothing, housing and healthcare rose by a marginal 0.5%, 0.4% and 0.3% respectively.

Outlook for 2005

Going forward, further deceleration of the G-3 economies cannot be ruled out, after the weaker-than-expected performance of the US economy in the first quarter of 2005. Moving through 2005, the slowdown might be further compounded by higher US inflation and thus higher interest rates.

Similarly, the outlook for Japan is negative with a more rapid slowdown of growth. Growth of the EU economy is also forecasted to ease slightly. The moderation in the G-3 economies will however mitigate the adverse impact of persistently high oil prices.

Despite these concerns, external demand is still expected to remain supportive of economic growth in the near-term. Global trade is forecasted to remain firm. Economic growth rates in key Asian economies are also projected to remain robust.

Meanwhile, the unexpectedly strong growth in global semiconductor sales which surged by 13.2% in 1Q05 and the pick-up in various forward looking indicators suggest that the global semiconductor downturn, which was widely expected, may not be protracted.

The composite leading index (CLI), an indicator that leads economic activity by about three quarters ahead, finally turned upwards with an expansion of 1.0%. The reversal in trend points to the possibility of an early return of economic growth momentum. Lending weight to the possibility of a sooner-than-expected upturn, the latest business expectations surveys show sentiments improving in both the manufacturing and services sectors

However, in view of the weaker-than-expected performance of the economy in the first quarter of 2005, the Ministry of Trade and Industry has revised the GDP growth forecast for 2005 downwards from 3.0-5.0% to 2.5-4.5%.

Annex