Singapore: recession likely deeper than expected

April 14, 2009
Singapore Democrats

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AFP

Singapore’s worst economic crisis since independence is predicted to be even worse than expected, with output now forecast to shrink by up to 9.0 percent in 2009, official data showed.

The Ministry of Trade and Industry (MTI) said gross domestic product (GDP) would fall by 6.0 to 9.0 percent this year, a stunning downgrade from the previous official estimate of a decline of 2.0 to 5.0 percent.

“MTI’s earlier forecast had factored in the likelihood of a weak first quarter, but the advance estimates indicate that actual GDP growth will undershoot earlier expectations by a significant margin,” it said.

Previously, Singapore’s worst performance since it became a republic in 1965 was in 2001, when the economy contracted 2.4 percent.

The revised 2009 outlook was the fourth downgrade since November, a reflection of the severity of the recession confronting the trade-dependent state as electronics and other manufactured exports continue to plunge.

“It’s quite shocking,” Leong Wai Ho, an economist with Barclays Capital, said of the government’s revised 2009 outlook.

“It’s a reflection of their assumption that things could get a lot worse in external demand which we don’t believe is the case,” said Leong, who is still maintaining a forecast of a four percent contraction for this year.

If Singapore’s GDP shrinks by 9.0 percent in 2009, that would make it the worst performing Asian economy for this year, economists said.

But Standard Chartered bank said forecasts of anything more than a 10 percent contraction this year “seem overly pessimistic to us.”

The country’s influential founding father Lee Kuan Yew last month warned that the economy may shrink by 10 percent if exports continue to fall sharply.

Despite the projection the Straits Times Index was off just 0.51 percent at 1,867.28 points by midday, with one financial house saying the GDP numbers could mark the bottom of the economic cycle.

The revised outlook came as fresh data showed GDP shrank 11.5 percent in the first quarter from a year ago, far worse than the 4.2 percent decline recorded in the preceding three months.

The fall is the worst ever for a single quarter since records began in 1976. Singapore’s previous record quarterly contraction was in 2001 when GDP shrank 6.4 percent in the third quarter.

On a seasonally adjusted annualised basis, GDP declined 19.7 percent in the first quarter this year, also a record, compared with 16.4 percent in the previous quarter, the ministry said.

The estimate is based on preliminary data computed mainly from the first two months of 2009 and a fuller picture is likely to emerge next month.

Almost every sector of Singapore’s economy was hit in the first quarter with manufacturing especially affected by the fall-off in exports, the ministry said.

Manufacturing shrank 29 percent year on year, pulled down sharply by declines in crucial exports of electronics, chemicals and biomedical products.

“With most of Singapore’s key trading partners still in recession, the manufacturing sector will continue to remain weak for the rest of the year,” the ministry said.

The revised GDP forecast was made after key exports, known as non-oil domestic exports (NODX), fell by an estimated 17 percent in March to 11.88 billion Singapore dollars (787 million US) from a year ago.

Singapore’s trade promotion agency, International Enterprise Singapore, said the drop in March NODX was due to continued declines in shipments to top markets, especially the United States, the European Union and Japan.

The Monetary Authority of Singapore (MAS), the de facto central bank, announced Tuesday in a separate statement that it was adopting an easier policy stance, a move widely expected by analysts.

The MAS said it lowered the trading band for the Singapore dollar, which essentially allows the local currency to depreciate.

The Singapore dollar is currently hovering at around 1.50 to the US dollar.

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