On a seasonally adjusted QoQ annualized basis, the economy contracted by 1.1% vs. 1Q12’s 9.4% gain. The weakened growth momentum was mainly due to lower output in the manufacturing sector, which contracted 6% QoQ after 1Q12’s 20.9% expansion, largely because of a decline in biomedical manufacturing output. Construction growth also moderated to 0.3% QoQ from 1Q12’s 27.9% increase. As for services, growth was 0.4% in 2Q12 compared to 2.7% in the previous quarter. Although tourism-related sectors continued to expand, the pace of growth also moderated.

GDP figures disappoint but no need to panic yet

The figures will disappoint as most traders were expecting a slightly higher rate of expansion. But there is no need to press the panic button, yet. Q2 year-on-year GDP growth of 1.9% is still healthy given the backdrop of the sluggish global economy and a eurozone crisis still alive and kicking.

The Singapore economy has been pretty resilient weathering the storm coming in from the eurozone by diversifying across a range of sectors including oil and gas, pharmaceuticals and electronics.

On a quarter-on-quarter basis the economy shrank 1.1% but this is a slightly unfair comparison as Q1 was a very different picture to Q2, when optimism, manufacturing and orders were much higher as traders expected the US economy to spark a global recovery.

But the headwinds are proving strong as Asia takes a hit from slowing European trade. All eyes will be on China now and the effects of the eurozone crisis on its economic growth.

While one hopes these figures mark a bottoming out for the local economy, Chinese GDP data will shed more light on this assumption.