Singapore May Boost Spending as Economy Contracts

By Shamim Adam and Chen Shiyin

Jan. 21 (Bloomberg) -- Singapore said its economy may shrink an unprecedented 5 percent this year, fanning speculation the government will announce record spending in its budget tomorrow to help companies hurt by the global recession.

Finance Minister Tharman Shanmugaratnam may outlay as much as S$20 billion ($13.3 billion), or 8 percent of gross domestic product, to help households and businesses survive the slump, Macquarie Capital Securities predicts. The government may also tap into its reserves for the first time to fund the expenditure.

Singapore is going through its sharpest recession and may experience the deepest deflation since 1986 this year, the government said today. Falling demand has forced companies such as DBS Group Holdings Ltd. and Stats Chippac Ltd. to fire workers, and Credit Suisse Group predicts as many as 300,000 jobs may be lost by the end of 2010.

“All the government can do is to ensure that citizens and businesses cope with the recession because it’s not possible to counteract the drop in external demand,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. “The situation may start to improve only in the fourth quarter.”

The Singapore dollar gained 0.3 percent versus its U.S. counterpart to S$1.5028 as at 3:18 p.m. local time, after the central bank said there’s no reason for the currency to continue weakening, with wage and fiscal measures “more appropriate” to help companies cut costs.

‘Policy Intact’

“Our monetary policy stance remains intact,” Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore, said today. “This current slowdown reflects the sharp decline in the external environment and not an erosion of competitiveness and therefore there is no reason for any persistent weakening in the Singapore dollar.”

The currency, which has fallen 3.9 percent this year, earlier fell as much as 0.3 percent after the government said gross domestic product may shrink 2 percent to 5 percent this year, cutting its economic forecast for the second time in less than three weeks.

The economy declined an annualized 16.9 percent last quarter from the previous three months, after shrinking a revised 5.1 percent between July and September, the trade ministry said today. The contraction in the fourth quarter was worse than a Jan. 2 estimate of 12.5 percent.

The Southeast Asian economy has contracted for three straight quarters, sliding into recession along with Japan, Hong Kong and New Zealand. The likelihood of a sharp rebound in growth “appears low,” Ravi Menon, an official at the trade ministry, told reporters in Singapore today.

‘Tough Year’

The economy grew 1.2 percent last year, less than earlier estimated. A decline of 5 percent this year would be the worst since the nation gained independence in 1965, according to Bloomberg data.

“2009 will definitely be a tough year for Singapore and most of export-oriented Asia,” said Manpreet Gill, a strategist at Barclays Wealth in Singapore. “In Asia, I won’t expect a sharp recovery. It will be a bit more drawn out.”

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 this week.

Consumer prices may fall as much as 1 percent or stay unchanged this year, the government said today. The lower end of that forecast would be the biggest decline in prices since a 1.4 percent drop in 1986.

Manufacturing

“The economic downturn has spread to all the key sectors of the economy,” Trade Minister Lim Hng Kiang said 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 percent in the three months ended December from a year earlier, and shrank 4.1 percent in 2008, the trade ministry said.

Overseas shipments may drop 9 percent to 11 percent in 2009, the government said today, which would be the worst performance since 2001.

“Most of our members feel that they’ll be hit a lot harder this year than last quarter, particularly in the first quarter,” Renny Yeo, president of the Singapore Manufacturing Federation, said in an interview with Bloomberg Television today. “This situation calls for multiple assistance schemes on various fronts” from the government.

Help for Business

Businesses will get help with rental and wage bills, Prime Minister Lee Hsien Loong said 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.

The government may consider dipping into the country’s financial reserves to fund its spending programs this time, after refraining from doing so when it ran deficits previously, Senior Minister Goh Chok Tong said this month.

Measures to help citizens survive the recession may include as much as S$7.5 billion of cash handouts, tax and utility rebates, said Selena Ling, head of treasury research at Oversea- -Chinese Banking Corp.

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