Singapore, April 14: Singapore said its economy may shrink as much as 9 percent this year, the most since independence in 1965, as a deepening global recession drives down exports and manufacturing.
The economy may contract 6 percent to 9 percent, the trade ministry said in a statement today, reducing its forecast for the third time this year. The government previously predicted a decline of as much as 5 percent.
The central bank said it would adjust the trading range for the Singapore dollar, effectively lowering the band for the first time since 2003 to revive growth. Exports tumbled for an 11th month amid a slump that’s forced Chartered Semiconductor Manufacturing Ltd. to fire workers and the government to reduce taxes and subsidize jobs.
“The situation is really dire and the central bank’s policy will improve sentiment and help the economy,” said Vishnu Varathan, an economist at Forecast Singapore Pte. The policy move “gives them the flexibility to weaken the currency now, and steer it to strengthen when things get better.”
The worst global slump since World War II has pushed Asia’s trade-dependent nations into their deepest slowdown in more than a decade. Thailand’s economy may suffer a bigger contraction in 2009 than the 3 percent decline initially forecast after anti- government protests led to a state of emergency in Bangkok, Finance Minister Korn Chatikavanij said today.
The Monetary Authority of Singapore, which uses the exchange rate to manage price stability, said the local dollar had been trading at the lower end of its target range since October. The band will now be “re-centered” to reflect recent levels, it said.
Effective Devaluation
“The re-centering effectively translates to roughly a 1.7 percent devaluation of the Singapore dollar on a trade-weighted basis,” said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. That would be the first effective lowering of the currency band since July 2003, he said.
Southeast Asia’s worst-performing currency this year rose 1.1 percent today after the central bank said there’s no reason for an “undue weakening.” Singapore stopped favoring gains in the local dollar in October and the central bank said today it will continue to seek neither appreciation nor depreciation.
Inflation will continue to ease in the coming months on cheaper commodities and a weakening economy, the authority said, reiterating a forecast that consumer prices will fall as much as 1 percent or remain unchanged this year.
Forecasts Cut
Singapore’s gross domestic product declined an annualized 19.7 percent last quarter from the previous three months, the trade ministry said today. The contraction was more than double the 9.6 percent drop predicted in a Bloomberg survey, and the biggest since at least 1975.
DBS Group Holdings Ltd. and United Overseas Bank Ltd. lowered their Singapore GDP forecasts today. DBS predicts the economy will shrink 7.7 percent this year, from an earlier forecast of a 4.8 percent contraction, while United Overseas expects a slide of 7.5 percent.
“The global economy is expected to remain weak in the coming quarters,” the trade ministry said today. “While there are tentative signs of some stabilization in the housing, financial and manufacturing sectors in the U.S., they do not point to a clear turnaround in economic activity.”
Singapore’s efforts to prevent job losses by handing out cash to companies haven’t stopped Chartered Semiconductor, music-player maker Creative Technology Ltd. and Swiss lender UBS AG from firing workers.
Job Losses
Companies probably fired more than 10,000 workers in the first three months of 2009, the Straits Times cited Prime Minister Lee Hsien Loong as saying last week. Singapore Airlines Ltd. has frozen pay and asked employees to take unpaid leave, and publisher Singapore Press Holdings Ltd. has cut wages.
UBS, Switzerland’s largest bank, said today it will eliminate 100 jobs in Singapore as it cuts about 240 positions from its wealth management division in the Asia-Pacific. Growth in financial services in Singapore slowed every quarter last year, and fell 8.1 percent in the final three months.
“The recession is very real and we have been bracing ourselves for a slowdown in demand,” said Dhrubajyoti Das, executive director of Singapore-based Samudera Shipping Line Ltd. “We will remain open to the possibility of capacity rationalization.”
Exports fell 17 percent in March from a year earlier, the trade promotion agency said today. Overseas shipments may drop as much as 13 percent in 2009, the government said, revising a previous estimate for a decline of 9 percent to 11 percent.
“Visibility remains fairly poor,” said Chong Chow Pin, senior director for corporate development at United Test Assembly Center Ltd., a Singapore-based semiconductor assembler and packager. “It’s too early to say if the semiconductor industry is out of the woods but the first quarter appears to be the bottom. Of course, no one can be certain.”
Singapore’s $161 billion economy contracted 11.5 percent last quarter from a year earlier. Manufacturing, which accounts for a quarter of the economy, fell 29 percent. Services shrank 5.9 percent while construction gained 25.6 percent.
Bureau Report
