Economy may shrink by record 9% as trade collapses

Tags: Barclays Capital Chartered Semiconductor Mfg Creative Technology Forecast Singapore Pte Singapore Airlines Singapore Press Holdings
Tuesday, 14 April 2009 13:17

Singapore said its economy may shrink as much as 9% this year, the most since independence in 1965, as a deepening global recession drives down exports and manufacturing, reported Bloomberg. The economy may shrink 6% to 9%, 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%.The central bank said it would adjust the trading range for the Singapore dollar, effectively lowering the band for the first time since 2003 to revive growth. Singapore stocks fell after exports tumbled for an 11th month amid a slump that’s forced Chartered Semiconductor Manufacturing to fire workers and the government to reduce taxes and subsidize jobs. “The situation is really dire and the central bank’s policy will improve sentiment and help the economy,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “The wider band gives them the flexibility to weaken the currency now, and steer it to strengthen when things get better.” 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. Thailand’s economy may suffer a bigger contraction in 2009 than the 3% decline initially forecast after anti-government protests led to a state of emergency being declared in Bangkok, Finance Minister Korn Chatikavanij said today.

Singapore’s Straits Times Index of stocks declined 0.7% to 1,863.43 as of 12:08 pm, snapping a two-day, 5.2% advance. CURRENCY BANDThe 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-centred” to reflect recent levels, it said. “The re-centring effectively translates to roughly a 1.7% devaluation of the Singapore dollar on a trade-weighted basis,” said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. That would be the first effective lowering of the currency band since July 2003, he said. Southeast Asia’s worst-performing currency this year rose 1.1% 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. FIRST QUARTERSingapore’s gross domestic product declined an annualised 19.7% last quarter from the previous three months, after shrinking 16.4% between October and December, the trade ministry said today. The contraction was more than double the 9.6% drop predicted in a Bloomberg survey, and the biggest since at least 1975. “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.” 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 from firing workers. Companies probably fired more than 10,000 workers in the first three months of 2009, The Straits Times cited Prime Minister Lee Hsien Loong as saying last week. Singapore Airlines has frozen pay and asked employees to take unpaid leave, and publisher Singapore Press Holdings has cut wages.