Singapore is in recession

Source : Straits Times - 10 Oct 2008

~ MTI lowers 2008 forecast to 3%, from earlier 4-5%
~ MAS moves to ease monetary policy
~ Inflation has peaked

SINGAPORE’S economy has slid into its first technical recession since 2002, as a slump in exports pushed quarterly growth into negative territory for the second quarter in a row.

It added that Singapore’s export-oriented sectors, such as manufacturing, will be affected, noting that Europe is also facing severe strains in the banking sector, tighter credit conditions, and adjustments in housing prices. — ST PHOTO: TERENCE TAN

The economy shrank by a worse-than-expected 0.5 per cent in the third quarter compared to the same period last year, according to estimates from the Ministry of Trade and Industry (MTI) released on Friday morning.

MTI has also revised its full-year growth forecast for the second time this year, lowering it to ‘around 3 per cent’ from 4 to 5 per cent previously. This would make it the weakest pace in seven years.

Recognising growth concerns, the Monetary Authority of Singapore also changed its policy stance to zero appreciation of the Singapore dollar, reversing the gradual appreciation policy it has adopted since 2003.

On a quarterly basis, third-quarter GDP contracted 6.3 per cent from the second quarter, on top of a 5.7 per cent decline in the previous three months. A technical recession is generally defined as two consecutive quarters of decline.

Manufacturing led the slowdown again this time around, weighed down by a poor performance in the biomedical sciences segment. It was also hit by weakened global demand for exports as the United States-triggered financial crisis spreads around the world.

The sector shrank by 11.5 per cent in the third quarter, after declining 4.9 per cent in the previous quarter.

Growth in construction and services also slowed. Construction, in particular, saw its pace of expansion halved to single-digit growth, as projects were delayed by the construction squeeze, said MTI.

Services, touted as a key driver of growth this year, is likely to take a hit as well as financial services falters in the wake of the global credit crunch.

Most economists expect the economy to grow even more slowly next year, with the chance of a technical recession turning into a ‘real’ one.

‘With external conditions deteriorating and the lack of domestic demand support, we expect Singapore to register no growth next year… with a muted recovery, if at all, expected only in the second half of next year at the earliest,’ said Morgan Stanley economists in a report.

Inflation peaks

Inflation, which reached a 26-year high earlier this year, has peaked, said MAS. Consumer prices will rise between 6 per cent and 7 per cent this year, and gains will ease to between 2.5 per cent and 3.5 per cent in 2009, it predicted.

‘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,’ said MAS.

‘Inflation is expected to trend down in 2009 as the global and domestic economies slow.’

Exports slump

Singapore’s US$161 billion (S$239 billion) economy declined 0.5 per cent last quarter from a year earlier, compared with a revised 2.3 per cent gain between April and June.

Growth has deteriorated as a slump in export demand forced factories to cut production, tourist arrivals faltered and a real-estate boom ended, reported Bloomberg news.

The island’s manufacturing industry, which accounts for a quarter of the economy, contracted 11.5 per cent last quarter from a year earlier, compared with a revised 4.9 per cent drop in the previous three months, according to today’s report.

Singapore’s government expects exports to decline as much as 4 per cent this year, and the island’s shipments of electronics goods have fallen for 19 consecutive months.

Financial services

Services climbed 6.1 per cent in the third quarter from a year earlier, slowing from a 7 per cent pace in the previous three months. The city-state will probably miss a government target of 10.8 million visitors in 2008, the tourism board said on Sept 23, after visitor arrivals dropped 7.7 per cent in August.

‘The financial services sector is likely to see slower growth in the coming months as the ongoing global financial crisis has heightened uncertainties for sentiment-sensitive segments such as stocks trading and fund management activities,’ said MIT.

The construction industry grew 7.8 per cent, easing from a revised rate of 19.8 per cent in the previous quarter.

Singapore’s benchmark Straits Times Index slumped 7.3 per cent to its lowest level since November 2004 on Friday in opening trade after the economic data and policy statement.

The Singapore dollar rose to $1.4724 per US dollar after the central bank’s announcement compared with $1.4780 as traders adjusted positions after the widely expected move.