Singapore economy may be past worst, shrinks less than forecast

May 21, 2009
Singapore Democrats

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Shamim Adam & Chan Sue Ling
Bloomberg

Singapore’s government said the economy shrank less than initially estimated last quarter and a second stimulus package may not be needed as the nation emerges from the deepest recession in its 44-year history.

Gross domestic product declined an annualized 14.6 percent last quarter from the previous three months, after shrinking 16.4 percent between October and December, the trade ministry said in a statement today. The initial estimate on April 14 was for a 19.7 percent drop.

Singapore joins other sian nations in showing signs it may be past the worst of its yearlong export slump. The Bank of Japan may raise its assessment of the economy for the first time since July 2006 tomorrow, even after a report showed a record contraction in the first quarter, economists say.

“The economy probably reached the trough last quarter but the ‘green shoots-of-recovery’ story will have to wait a bit longer,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore. “The pace of declines may ease but the second quarter will still be a weak one for Singapore.”

The worst global recession since World War II has battered Singapore’s exports, forcing companies including Chartered Semiconductor Manufacturing Ltd. to fire a record number of workers on the island and prompting the government to cut taxes and hand cash to businesses to help them cope with the slowdown.

Prime Minister Lee Hsien Loong’s government expects the economy to shrink as much as 9 percent in 2009, the most since independence in 1965. The International Monetary Fund predicts a 10 percent contraction, the worst performance in Asia.

Second stimulus

“We seem to have hit the bottom and things are not likely to get worse from this point on,” Ravi Menon, an official at the trade ministry, told reporters today. The economy is “not likely” to need a second stimulus package this year because things haven’t worsened, he said.

The Singapore dollar rose 0.4 percent to S$1.4557 against the U.S. currency at 11:37 a.m. local time. The island’s currency is the worst performer in Asia after the Malaysian ringgit among 10 currencies outside Japan, declining 0.8 percent this year.

The Monetary Authority of Singapore said last month it would adjust the trading range for the Singapore dollar, a move economists say effectively devalued the currency.

The Singapore dollar’s behavior “is consistent with the policy stance and we’re comfortable with the Singapore-dollar price action,” Ong Chong Tee, a central bank deputy managing director, said at a press briefing today.

Slow recovery

Singapore’s economy will make a “slow and gradual” climb out of the recession, rather than a “decisive rebound” this year, the central bank said last month. Taiwan may say today its GDP probably shrank at an unprecedented pace last quarter as exports to the U.S. and China fell, according to a Bloomberg News survey.

The global economy is probably “nearing the turning point,” Don Hanna, a New York-based economist at Citigroup Inc., said in a note yesterday, predicting a “subdued” recovery.

“We have probably seen most of the vulnerability already,” Nobel Prize-winning economist Paul Krugman said in Ho Chi Minh City yesterday. “I don’t think we are going to get any more of big shocks from the U.S., Western Europe, Japan or China. My concern has shifted to how do we hold up if we have the world economy that stays depressed for a long time.”

Jobless rate

Singapore’s $161 billion economy contracted a revised 10.1 percent last quarter from a year earlier. Manufacturing, which accounts for a quarter of the economy, fell 26.1 percent, less than the 29 percent decline estimated on April 14. Services shrank a revised 5.2 percent while construction gained a revised 24.4 percent.

Employers fired a record 12,600 workers last quarter in Singapore, pushing the jobless rate to the highest in more than three years. Electronics exports have dropped every month for more than two years, and the financial services industry is shrinking after the global credit crisis.

Singapore’s financial industry will probably shrink this year compared with 2008 even amid signs of some improvement in lending in the first quarter, the central bank’s Ong said.

The economy may contract 6 percent to 9 percent this year, the trade ministry reiterated today. Consumer prices are forecast to remain unchanged or fall 1 percent in 2009, and non- oil domestic exports may plunge as much as 13 percent.

“While trade is still expected to be weak for the rest of 2009, further declines of the magnitude seen earlier this year seem unlikely,” the ministry said. “Any new risk, such as an acute worsening of the Influenza A (H1N1) situation or undisclosed weaknesses in U.S. or European banks coming to light, could set back the process of economic recovery by several quarters.”

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