Economy may shrink by 5%

Singapore will unveil this year's budget plan tomorrow, as it attempts to speed up aid to companies hurt by the global recession and minimise job cuts.

The Straits Times

 

SINGAPORE slashed its economic growth forecast for 2009 for the second time in just three weeks, predicting the economy will suffer its first contraction in eight years as it grapples with a global economic downturn.

The Ministry of Trade and Industry expects its 2009 Gross Domestic Product to contract between 2 per cent and 5 per cent, the government said on Wednesday, three weeks after it cut its outlook to a range of minus 2 per cent to plus 1 per cent from an initial forecast of minus 1 per cent to plus 2 per cent issued in November.

The economy grew 1.2 per cent last year, less than earlier estimated.

GDP fell an annualised 16.9 per cent in the last quarter from the previous three months, after shrinking a revised 5.1 per cent between July and September, said MTI on Wednesday morning.

The contraction in the fourth quarter was worse than a Jan. 2 estimate of 12.5 per cent.

Singapore is facing unprecedented conditions in this recession and little can be done to mitigate the slowdown, Trade Minister Lim Hng Kiang said this week.

'The economic downturn has spread to all the key sectors of the economy,' Mr Lim said on Jan 19. 'Our manufacturing sector is likely to continue facing a slowdown this year.'

Manufacturing, which accounts for a quarter of the economy, fell a revised 10.7 per cent in the three months ended December from a year earlier, and shrank 4.1 per cent in 2008, according to MTI.

Singapore has been hit by declining orders for electronics goods and pharmaceuticals from its biggest customers in the US and Europe, as well as emerging markets.

Creative Technology Ltd, the Singaporean maker of accessories for Apple Inc's iPod, said Dec 31 it eliminated 2,700 jobs or almost half its workforce last fiscal year after demand for its own music players tumbled.

MTI said overseas shipments may drop as much as 11 per cent in 2009, after a 7.9 per cent decline last year that was the worst performance since 2001.

Growth in the services and construction industries slowed. Services dropped 0.1 per cent in the fourth quarter from a year earlier, and grew 5 percent last year. Construction gained a revised 14.1 per cent, and rose 17.9 per cent in 2008.

Commenting on the revised forecast, Mr David Cohen of Action Economics said: 'The results shows the further deterioration from the global downturn and Singapore is hardly immune from it. 'I believe there will be emphasis for fiscal measures for the Singapore budget tomorrow, stimulus measures and bolstering for a safety net for the workers.'

Added Mr Kit Wei Zheng, Citigroup economist: 'The revised GDP forecast is just catching up with consensus. Some guy had put out a contraction of 4.5 percent so the new forecast covers the range.'

'The zero to minus one percent inflation outlook indicates a risk of deflation and an easing of policy. They did not say when but there should be a downward re-centering of the band (in which the Singapore dollar is allowed to trade).'

The Singapore dollar stood at 1.5094/99 against the US dollar versus 1.5094 before the announcement.

Singapore's central bank moved on Oct 10 to support the weakening economy by loosening monetary policy for the first time in five years by letting the Singapore dollar rise at a slower pace.

The government will unveil this year's budget plan on Thursday afternoon, as it ramps up assistance to companies hurt by the global recession and minimise job cuts.

More than 10,000 people were retrenched last year and a worsening economy may result in job losses tripling in 2009, reaching numbers not seen since the Asian financial crisis a decade ago, the government said.

The government may announce as much as S$20 billion in additional spending on Thursday when it unveils its budget, said Selena Ling, head of treasury research at Oversea- Chinese Banking Corp. in Singapore, reported Bloomberg news.

Businesses will get help in rental and wage bills, Prime Minister Lee Hsien Loong said on Dec 31. The government in November said it will extend more loans to local companies and spend S$600 million over the next two years on worker training.

Measures to help citizens survive the recession may include as much as S$7.5 billion of cash handouts, tax and utility rebates, said OCBC's Ling.

'The budget would likely take an aggressive and multi- pronged approach to reduce costs, assist businesses and Singaporeans, and pump-prime the economy while not forgetting medium-term competitiveness,' she added. It will 'only partially mitigate the economic downturn'.