Recession Looms For Singapore: Economists Print E-mail

TEP – 9 October 2008

Singapore appears headed for its first recession since 2002 as the city-state suffers from a US economy wilting under its worst financial crisis since the Great Depression, economists say.

Southeast Asia's wealthiest economy in terms of GDP per capita is heavily dependent on trade, which makes it sensitive to hiccups in developed economies, particularly key export markets the US and Europe.

The crisis that began last year in the US subprime, or higher-risk, mortgage sector is now infecting European shores, and Singapore may very likely find itself in an extended downturn, economists said.

Gross domestic product expanded an annualized 0.3 pct from the second quarter, after shrinking 6 pct in the previous three months, according to the median estimate of 11 economists in a Bloomberg survey. Four of the economists expect a second quarter of contraction, marking a recession.

They expect this Friday's release of preliminary economic data for the third quarter to confirm Singapore is in a technical recession, generally defined as two consecutive quarters of quarter-on-quarter contractions in economic output.

"We are pencilling in the worst for Singapore.... We might see two straight years of (economic) contractions (from 2009 to 2010)," said CIMB-GK Research.

While the last technical recession came six years ago, the most recent full-scale recession was in 2001 when the economy contracted 2.4 pct during the year.

In August, key non-oil domestic exports fell for the fourth straight month, with electronic shipments continuing a decline begun in February 2007, and manufacturing dropped by 12.2 percent.

In the second quarter to June, Singapore's economy contracted 6.0 pct on an annualised, quarter-on-quarter basis and the negative trend likely extended into the third quarter, said economists.

"Things are bad globally," said Citigroup's.  "There are a lot of downside risks and in such a scenario, one cannot hope for a quick recovery," he said in Singapore. Citigroup is optimistically forecasting a fourth-quarter recovery, with full-year growth at 2.8 pct.

CIMB-GK revised 2009 forecast would likely be for negative growth.Given the rarity of the global crisis, "the numbers we may be looking at may be once in a century for Singapore. If the world is in a recession, there is little that we can boost," said CIMB-GK. "Our plan B is really to try to make the local population bigger."

According to economists' calculations, more than two-thirds of the country's economy, valued at 243.17 billion Singapore dollars in 2007 (166.46 billion US), is driven by external demand.

The island nation has no significant domestic economic drivers to lean on because its market of almost five million is simply too small, said economists.

Economists from Credit Suisse also see Singapore's economy slowing further next year.

"Signs that growth will be lower in 2009 than in 2008 are everywhere... lower job and income growth, falling asset prices, and flat to negative export growth," they said in a report.

"By sector, the global financial turmoil could hit financial services growth hard, exports are likely to drag down manufacturing, and the biomedical sector is expected to remain under pressure from competition from generic drugs."

In early August Singapore's government cut its forecast for economic growth this year to between 4.00  and 5.00 pct.

But Finance Minister Tharman Shanmugaratnam warned this week that the country could be stuck in an economic downturn that may last "several quarters" as the global crisis evolves.

"It is now an economic crisis," he was quoted as saying Monday in The Straits Times.

"So globally the economy is slowing down. This is a fact that we cannot escape." 

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