Reuters - Monday, August 11
By Jan Dahinten and Kevin Lim
SINGAPORE, Aug 11 - Singapore's economy contracted in the
second quarter and the government forecasts exports to fall this
year for the first time since 2001, a sign that sagging growth is
becoming a bigger worry for Asia than inflation.
The government on Monday forecast non-oil domestic exports would
fall 2-4 percent in 2008, against an earlier estimate of 2-4
percent growth, and predicted the economy would grow at a lower end
of a weaker 4-5 percent forecast.
In the second quarter, the economy contracted at a annualised
rate of 6 percent after seasonal adjustments, its worst performance
in five years and in line with market expectations. Year-on-year
the economy grew 2.1 percent.
(For a graphic of GDP data, click on:
https://customers.reuters.com/d/graphics/SG_GDPQ0808.gif)
Singapore's heavy dependence on trade makes the $160 billion
economy a good gauge of how the global slowdown is affecting Asia.
Non-oil domestic exports to the United States fell 21 percent in
the second quarter, while shipments to European Union dropped by 12
percent.
The Singapore dollar, the central bank's main policy tool,
slumped to a near six-month low around S$1.41 to the U.S.
dollar.
"The balance of risk is shifting away from inflation toward
growth as seen from the correction of the Singapore dollar last
week," said Kit Wei Zheng, an economist at Citigroup.
NO RECESSION
Like many Asian countries, Singapore has been grappling with
inflation even as economic growth slows. But officials suggested on
Monday that inflation may have peaked and said -- while not
expecting at technical recession -- that there will be no quick
turnaround in global growth.
"The macroeconomic dynamics will remain fluid over the next 12
to 18 months. It is too early to tell what 2009 will bring," Ravi
Menon, a permanent secretary at the trade ministry, told
reporters.
"Current indications are that global economic growth will not
see a quick turnaround."
Construction grew 17.4 percent year-on-year and the financial
sector grew 10.2 percent in the second quarter, but manufacturing
shrank 5.2 percent.
Manufacturing, which accounts for about a quarter of economic
activity, is expected to slow, reflecting weak U.S. and European
demand.
Given that, economists said it was unlikely that the central
bank will further tighten monetary policy at its next meeting in
October, barring a spike in oil prices.
"We believe our policy remains appropriate," said Ong Chong Tee,
managing director of central bank the Monetary Authority of
Singapore.
The central bank steers monetary policy by managing the
Singapore dollar's <SGD=> nominal effective exchange rate --
its relative value compared with a basket of currencies of trading
partners -- rather than by adjusting interest rates. The trading
band and the currencies in the basket are kept secret.
The bank moved the centre of the band up in April, its most
aggressive policy change since the 2003 SARS epidemic, to tame
inflation that reached a 26-year high in June. (Additional
reporting by Saeed Azhar and Charmian Kok, editing by Neil
Chatterjee and Tomasz Janowski)
