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The International Monetary Fund Tuesday said that Singapore’s economy is likely to shrink by about 8% this year as the global economic crisis has pushed the export dependent nation into its worst economic downturn since the 1965.
In its report, after talks with Singapore authorities in May, the IMF said that Singapore’s economy is expected to pick up modestly in 2010 as the global economy recovers and that Singapore’s gross domestic product will rise by 2.5% that year.
The IMF’s assessment of Singapore’s GDP for 2009 is worse than the government’s estimate of a 4% to 6% contraction.
The IMF said that Singapore’s monetary policy remains “appropriate” and that it “should stay the course” until a recovery is well established.
The central bank uses the exchange rate rather than interest rates as its policy tool to maintain price stability and support growth due to the economy’s big reliance on overseas demand for growth.
“There was agreement that, once a recovery is well established, a return to a trend appreciation for the nominal effective exchange rate would safeguard price stability as slack in the economy is taken up,” the IMF said.
It also aid that “inflation would fall to about zero in 2009, on the back of lower food and energy prices and a widening output gap.”