Singapore Says Economy May Contract as Much as 9%

By Shamim Adam

April 14 (Bloomberg) -- Singapore said its economy may shrink as much as 9 percent this year, the most in its 44-year history, as a deepening global recession hurt exports and manufacturing.

The economy may shrink 6 percent to 9 percent, the trade ministry said in a statement today, reducing its forecast for the third time since early January. The government previously predicted a contraction of as much as 5 percent.

Singapore stocks fell after 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 central bank said it would adjust the trading range for the Singapore dollar, Southeast Asia’s worst performing currency this year.

“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. The central bank “is simply re-pricing the currency to newer realities of inflation.”

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 its recent levels, it said, effectively lowering the target.

Devaluation Effect

The currency rose 0.8 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 in the currency.

The worst global economic slump since World War II has pushed Asia’s trade-dependent nations into the region’s deepest slowdown in more than a decade. Singapore’s efforts to prevent job losses by handing out cash to companies haven’t stopped manufacturers such as Chartered and music-player maker Creative Technology Ltd. from firing workers as orders fall.

Companies probably fired more than 10,000 workers in the first three months of 2009, Prime Minister Lee Hsien Loong said last week, according to the Straits Times.

Gross domestic product declined an annualized 19.7 percent last quarter from the previous three months, after shrinking 16.4 percent between October and December, the trade ministry said today. The contraction was more than double the 9.6 percent drop predicted by economists in a Bloomberg survey.

Exports Plunge

“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.”

Exports fell 17 percent in March, 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 assembler and packager of semiconductors. “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, compared with a 4.2 percent decline in the three months ended December.

Manufacturing, which accounts for a quarter of the economy, fell 29 percent in the three months ended March from a year earlier, the trade ministry said.

Services shrank 5.9 percent in the first quarter, while construction gained 25.6 percent.

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