Singapore’s economy shrank the most in at least 33 years last quarter as plunging exports push Asian nations deeper into an economic slump and add pressure for the nation to weaken its currency.
Gross domestic product declined an annualised 16.4% last quarter from the previous three months, after shrinking a revised 2.1% between July and September, the trade ministry said in a report today. The contraction was less than a January 21 estimate of 16.9%.
Singapore’s dollar fell as the trade ministry said the growth prospect is “weak” this year and that any recovery would likely be gradual. The economy has contracted for three straight quarters, sliding into recession along with Japan, Hong Kong and New Zealand, and manufacturers such as Creative Technology Ltd are cutting jobs.
“With the collapse in exports and industrial production, the weight will fall on the Singapore dollar to take the adjustment,” said Thio Chin Loo, a senior currency strategist at BNP Paribas SA in Singapore. “We can expect the Singapore dollar to weaken.”
The Monetary Authority of Singapore, which uses the currency to manage inflation, stopped favouring gains in the local dollar in October. Thio says the central bank may allow the exchange rate to weaken further in the next review in April by re-centreing the policy band that the Singapore dollar is allowed to trade in.
The Singapore dollar fell 0.3% to 1.5322 against the US currency as at 9:47 a.m. local time today. The currency may weaken to S$1.60 per US dollar by the end of June, Thio said.
Weak First Half
“The economy is likely to continue to perform weakly in the first half of 2009,” the ministry said. Economic growth may “bottom out in the latter part of 2009.”
Singapore’s government is already accelerating public projects and encouraging companies to retain workers by handing out cash as demand for goods and services declines. Hong Kong’s government said yesterday it will refund taxes, suspend property rates and boost spending on infrastructure as the economy heads for its first full-year contraction since 1998.
“Singapore’s GDP growth prospects appear weak in 2009 on account of the pessimistic global economic outlook,” the ministry said. “While there is a possibility that a strong and sharp recovery might take place, a more gradual recovery trajectory is expected due to the extensive nature of the current downturn.”
Singapore’s US$161 billion economy declined a revised 4.2% last quarter from a year earlier, compared with zero growth between July and September.
This is the second revision Singapore has made to its fourth-quarter GDP figures. Its revision on January 21 was released earlier than usual to coincide with the government’s budget announcement the next day, which was also moved forward to hasten aid to companies.
“The growth numbers will continue to be dismal as most industries are seeing subdued activity,” said Song Seng Wun, an economist at CIMB-GK Securities Pte in Singapore. “There are significant downside risks to the economic outlook.”
The government expects GDP to shrink 2% to 5% this year, and prime minister Lee Hsien Loong has said the economy may remain in a recession all year. The economy grew a revised 1.1% in 2008, less than the 1.2% estimated last month.
Manufacturing, which accounts for a quarter of the economy, fell 10.7% in the three months ended December from a year earlier, the trade ministry said.
Services dropped a revised 1.3% in the fourth quarter from a year earlier, while construction gained a revised 18.5%.
“The manufacturing sector will likely be weighed down by declines in global demand for electronics products, pharmaceuticals and chemicals,” the ministry said. The financial services industry “is likely to continue to slow down in the midst of heightened uncertainty and risk aversion.”