Singapore cuts GDP forecast as Asian nations face slower growth

August 9, 2008
Singapore Democrats

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Shamim Adam
Bloomberg

Singapore cut its 2008 growth forecast for a second time this year, joining its Asian neighbors in signaling a deeper slowdown.

The island’s economy will expand between 4 percent and 5 percent, from an earlier estimate of 4 percent to 6 percent, Prime Minister Lee Hsien Loong said yesterday. Growth was 7.7 percent in 2007.

The U.S. housing recession has roiled financial markets and hurt demand for Asian-made goods, threatening expansion in a region the Asian Development Bank says will account for more than a fifth of global growth this year. Record commodity costs have forced central banks from Vietnam to Indonesia to raise interest rates at the risk of stifling expansion further.

“There is a much more subdued environment for the region in the third quarter,” said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. “Asia’s factories will probably be less busy in the second half.”

The Singapore dollar fell the most in more than four years yesterday on concern slowing growth will prompt the central bank to favor a weaker currency. The benchmark stock index fell 1 percent to 2,807.54, its lowest close since March 17.

Governments from South Korea to Thailand have lowered their 2008 growth forecasts since the start of this year as the impact of the U.S. slowdown spreads and soaring oil and food prices hurt spending.

“The U.S. economy is still facing serious problems,” Singapore’s Premier Lee said in his National Day speech last night. “U.S. consumers are spending less, and that is affecting the whole global economy. The difficulties will probably drag on well into next year before getting better.”

Global Recession

The world economy is “precariously close” to a recession in 2009, UBS AG said earlier this week as it cut next year’s global growth forecast to 2.9 percent from 3.1 percent, citing a U.S. slowdown. UBS considers a 2.5 percent global growth rate as one that is consistent with a recession.

Japan’s government this week said the world’s second- biggest economy is “weakening” for the first time since 2001. Gross domestic product in Japan probably shrank an annualized 2.3 percent in the three months ended June 30, according to a Bloomberg News survey.

The country’s exports fell for the first time in more than four years in June as growth in shipments to Asia and China slowed, signaling the U.S. slowdown is spreading to the emerging markets that helped sustain growth.

China, Korea

In China, economic growth slowed for a fourth straight quarter in the three months to June 30, expanding 10.1 percent. Growth below 9 percent would be “unacceptable” for a government targeting 10 million new jobs a year, Credit Suisse Group said this month.

South Korea’s finance ministry on Aug. 7 said growth in Asia’s fourth-largest economy is easing as consumer spending slows and higher fuel costs stoke inflation. An expansion of 4.8 percent last quarter was the weakest annual pace since the start of 2007.

Central banks across Asia have raised interest rates this year to combat inflation that’s projected by the International Monetary Fund to be the fastest in nine years globally, further threatening economic growth.

The Bank of Korea raised its benchmark interest rate by a quarter percentage point this week to 5.25 percent, the highest in almost eight years. Thailand, Indonesia, Vietnam, India and the Philippines have all raised borrowing costs this year.

Still, weak growth may be a bigger challenge for economies than inflation, UBS chief economist Larry Hatheway said in a report on Aug. 6. “Softer global economic activity for longer suggests peaking and then declining inflation,” he said.

The U.S. Federal Reserve, the European Central Bank and the Bank of England this week left interest rates unchanged as slowing growth made them wary about raising borrowing costs.

Singapore’s economy grew 1.9 percent in the second quarter from a year earlier, after expanding 6.9 percent the first three months. The government will release revised numbers on Aug. 11.