Heading
Into Recession
Next month Singaporeans will probably be told the bad news - that their economy has slipped into recession.
Sep 27, 2008

By Shamim Adam,
Bloomberg
Singapore will probably slip into a recession this quarter for the first time since 2002 after exports and manufacturing slumped and fewer tourists visited the city state, economists said.

Growth in the US$161b economy faltered as exports dropped for four consecutive months, and industrial output declined in July and August.

Gross domestic product contracted 6 percent in the second quarter from the preceding three months. The government will announce third-quarter data in October.

(Littlespeck: Citibank forecast Singapore GDP will fall this year from a predicted 4.1% to 2.8% and 2009 from 3.6% to 2.5%.)

Asian policy makers are warning of a deepening slowdown in their economies as demand from the US, Europe and Japan weakens amid turmoil in global financial markets.

Goldman Sachs Group last month estimated that half of the world economy faces recession, with richer nations faring the worst.

“The Singapore economy is facing headwinds on multiple fronts,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore.

“Manufacturing is down, the government thinks tourism will fall short of targets and the unravelling of the global financial crisis will slow banking activity here.”

Economists at DBS Group and United Overseas Bank, the nation's two largest lenders, yesterday lowered their 2008 forecasts for growth and said Singapore will probably fall into a recession this quarter.

Currency weakens

An economic slowdown may prompt the central bank to stop favouring currency appreciation and adopt a neutral policy, said DBS economist Irvin Seah.

The currency fell 0.4 percent to S$1.4276 against the US dollar at 6:13 pm Friday.

“The underlying growth momentum of the economy is undeniably slowing down,” Seah said.

“With growth fast heading south and inflationary risk likely to remain benign, we expect the Monetary Authority of Singapore to adopt a neutral exchange-rate policy stance in the forthcoming review in October.”

The island nation of 4.8m people would join others in posting a technical recession, defined as two straight quarters of negative growth...

Singapore's government last month lowered its estimate for 2008 growth to between 4% and 5% from an earlier forecast of as much as 6%.

The economy may grow less than 4%, the Straits Times reported this week, citing Trade and Industry Minister Lim Hng Kiang...

Risks intensify

“The financial crisis has likely intensified the downside risks to external demand and the property market,” said Kit Wei Zheng, an economist at Citigroup in Singapore.

“A likely tightening of financial conditions will impose its own drag on the domestic economy, independently of the external slowdown.”

The country's services industry, which accounts for about two-thirds of the economy, is also showing signs of weakening.

Visitor arrivals dropped 7.7% in August from a year earlier, the biggest tumble since the outbreak of a respiratory virus in Asia froze travel in 2003.

Meeting a 2008 target for 10.8m tourists will be `more challenging,' Senior Minister of State S. Iswaran said last week.

An inflation rate that's still near the highest in 26 years may prompt the central bank to allow slower gains in the currency rather than shift to a neutral policy, said Mark Tan, an economist at Goldman Sachs in Hong Kong.

The monetary authority in April allowed a faster appreciation in the currency to damp consumer-price gains.

“There is still a need to stay vigilant on the inflation front and we think policy makers will be uneasy about easing to an outright neutral stance at their October meeting,” he said.

Full report: http://www.bloomberg.com/apps/news?pid=20601080&sid=aoYVQL0l8e04&refer=asia