Singapore Says Economy, Exports May Contract in 2009

By Shamim Adam and Chen Shiyin

Nov. 21 (Bloomberg) -- Singapore lowered its growth forecast for a fourth time this year and said the economy may contract in 2009, prompting policy makers to implement more measures to avoid a prolonged slowdown.

The Southeast Asian nation will expand 2.5 percent in 2008, lower than an October forecast for 3 percent growth and less than a third of 2007's pace, the trade ministry said in a statement today. The economy, already in recession, may shrink by as much as 1 percent next year, the first time since 2001.

Asian policy makers and their counterparts around the world have lowered interest rates and announced stimulus plans to counter the impact of the global financial crisis. Singapore will announce its next budget on Jan. 22, a month earlier than planned, as Prime Minister Lee Hsien Loong warned the economy may experience several years of slow growth.

``There is a degree of urgency needed to implement expansionary policies to address the weakening economy,'' said Joseph Tan, the chief economist for Asia at Credit Suisse Private Banking in Singapore. ``The government knows it can't do much about external demand so the focus will be to pump-prime the economy through domestic sources.''

The export-dependent economy has been battered by declining orders for electronic goods and pharmaceuticals from its biggest customers in the recession-hit markets of the U.S. and Europe, as well as emerging nations. The government today said overseas shipments will fall as much as 7 percent this year, and may shrink by up to 1 percent in 2009.

Policy Shift

Gross domestic product contracted an annualized 6.8 percent in the third quarter from the previous three months, after shrinking a revised 5.3 percent between April and June, the trade ministry said in a statement today.

The government said today it plans to enhance measures to help local companies secure loans. Finance Minister Tharman Shanmugaratnam said the government won't reduce spending even though the budget deficit this year may be three times its initial projection.

Analysts including Ashley Davies and Nizam Idris at UBS AG say the central bank may soon shift to a policy that allows a weaker currency after ending a stance favoring gains in October.

The Singapore dollar is among Asia's worst performing currencies this quarter after the Monetary Authority of Singapore shifted a ``zero-percent appreciation'' stance last month. It has slid 6.2 percent against the U.S. currency since the beginning of October.

`Undue Weakness'

The central bank today said its policy stance remains appropriate and it has no plans to change it for now. It sees no reason for ``undue weakness'' in the Singapore dollar and will act if necessary to limit excess volatility, Edward Robinson, executive director of the Monetary Authority of Singapore's economic policy department, told reporters.

Singapore's $161 billion economy declined 0.6 percent last quarter from a year earlier, compared with a 2.3 percent gain between April and June.

The island's manufacturing industry, which accounts for a quarter of the economy, contracted a revised 11.4 percent last quarter from a year earlier, compared with a revised 5.2 percent drop in the previous three months, today's report showed.

The production slump has led to widening losses at companies including Chartered Semiconductor Manufacturing Ltd., the world's third-largest made-to-order chipmaker, and prompted some to cut jobs. Three-quarters of the 2,000 workers retrenched in Singapore last quarter were from the manufacturing industry.

Retrenchments

More workers are expected to be laid off in the manufacturing and financial industries, the government said today. It announced plans to spend S$600 million ($390 billion) over the next two years to help train workers and prepare them for new jobs.

Singapore's services industry slowed as the global credit crunch hurt financial companies, tourist arrivals dropped and consumers cut back on spending. Services climbed 5.3 percent in the third quarter from a year earlier, slowing from a revised 7.1 percent pace in the previous period.

The construction industry grew 12.8 percent, easing from a rate of 19.8 percent in the previous quarter. The building industry is facing labor and equipment-shortage constraints, and developers are delaying the introduction of new properties as prices fall.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Chen Shiyin in Singapore at schen37@bloomberg.net.