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Koh Gui Qing
Singapore eased monetary policy on Friday for the first time since 2003 after the Southeast Asian economy sunk into its first recession in six years and as the meltdown in financial markets threatened to further hit growth.
Singapore’s export-dependent economy shrank an annualised and seasonally adjusted 6.3 percent in the July-September quarter, advance government estimates showed, compared to the 1.1 percent growth forecast by economists in a Reuters poll.
Singapore last slid into a recession — usually defined as two consecutive quarters of economic contractions — in 2002.
The government also revised down its 2008 growth forecast to around 3 percent on Friday from an earlier estimate of 4 to 5 percent.
Economists said the looser monetary policy will cushion the headwinds Singapore’s economy faces from the worsening crisis, but the economy could be stuck in recession in the fourth quarter, and in the first half of next year.
“Looking at how fast construction is slowing, given services is slowing, and the fact that the global economy is going in a downwards spiral, it is quite likely Q4 will remain in negative territory,” said Selena Ling, head of treasury research at OCBC. “Quite possibly, first half of next year will remain in recession,” she said.
Singapore’s central bank sets policy by managing the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.
A looser policy will allow the currency to rise at a slower pace, and the currency should trade at the lower-end of the band as growth slackens, analysts said.
“Against the backdrop of a weakening external economic environment and continuing stresses in global financial markets, the growth of the Singapore economy is expected to remain below potential in the period ahead,” the central bank said on Friday.
“MAS is therefore shifting its policy stance to a zero percent appreciation of the S$NEER policy band,” it said in its twice-yearly policy review statement.
The Singapore dollar rose to 1.4724 per U.S. dollar after the central bank’s announcement compared to 1.4780 before as traders adjusted positions after the widely anticipated policy easing. It soon pared gains.
Singapore is the first Asian country to fall into a recession since the crisis started. Japan is teetering on one, and New Zealand slid into a recession in the second quarter for the first time in more than a decade.
The unfolding global financial crisis, the worst since the 1930s, has prompted central banks across the world from the United States to China to loosen policy to avoid a global recession.
Singapore is the first country in Asia to report quarterly gross domestic output data for the third quarter, and its heavy dependence on trade makes the $165-billion economy a good gauge of the impact of the crisis on the rest of Asia. Singapore, like most other Asian countries, depends on the world — especially the United States and Europe — to buy its exports and keep its economy growing.
But the worsening crisis has dented global demand for Asian exports. Singapore’s non-oil domestic exports, worth about 70 percent of the economy last year, fell on an annual basis in June, July and August.