Singapore economy shrinks, prompting weaker currency talk
Singapore economy shrinks, prompting weaker currency talk
Karl Malakunas Agence France-Presse Singapore
Singapore's SARS-hit economy contracted sharper than expected in the second quarter, the government said Thursday as the city- state's de facto central bank signaled it would accept a weaker local currency in a bid to boost exports.
The Ministry of Trade and Industry (MTI) said preliminary figures for the June quarter showed gross domestic product (GDP) shrank 4.3 percent year-on-year.
The forecast was based on the April and May figures when the Severe Acute Respiratory Syndrome (SARS) crisis, which killed 32 people in Singapore and brought the domestic economy to its knees, was at its peak.
GDP contracted by 11.8 percent on a quarter-by-quarter basis, compared with growth of 1.2 percent in the three months to March, the MTI said.
The 4.3 percent annual contraction was worse than an expected two to three percent figure that economists predicted in a poll by financial news wire AFX-Asia.
"The second quarter showing is definitely below market expectations... it has disappointed even the most bearish forecasts," IDEAglobal deputy head of research Nizam Idris said.
In the second quarter, the MTI said manufacturing was estimated to have contracted by 7.5 percent, construction was down 10.9 percent and the services segment shrank by three percent.
"GDP growth in the second quarter was predictably weak as a result of the weak global environment as well as the SARS outbreak," the MTI said, while forecasting a pick-up in the second half of the year.
"Financial markets have priced in stronger U.S. economic growth in the second half of the year, which would lift business sentiment."
The ministry said the pharmaceutical industry was also expected to see greater demand, while the end of the SARS crisis would lead to a boost for the travel and tourism industries.
The MTI said it would review the 2003 annual growth forecasts, which currently stand at 0.5-2.5 percent, next month.
Standard Chartered, which had forecast a contraction of 2.1 percent in the second quarter, said the worse-than-expected outcome was a result of SARS' hitting the tourism and travel sectors harder than initially thought.
"The impact of SARS is admittedly hard to assess and we had viewed that some signs of resilience in the retail sector might have mitigated the full brunt of SARS on the total services sector," Standard Chartered's chief economist for Southeast Asia, Steve Price, said.
At the same time, Price said that it was important to note that the preliminary figures were calculated only on April and May and an expected improvement in June was expected to lead to a final second quarter contraction of 3.8 percent.
Price said Singapore's economy was expected to grow again in the third quarter, thereby avoiding a technical recession, and maintained Standard Chartered's annual growth forecast of 1.5 to two percent.
But IDEAglobal's Idris downgraded his 2003 GDP growth forecast from one percent to 0.6 percent on the back of the Thursday's figures.
MMS International chief economist David Cohen was even more downbeat, cutting his yearly estimate from 0.5 percent growth a 0.3 percent contraction.
However economists predicted the Monetary Authority of Singapore's (MAS) realignment on Thursday of its foreign exchange policy band to current weaker levels could boost flagging exports, on which the Singapore economy is heavily reliant.
MAS, the de facto central bank, said the level of the trade- weighted Singapore dollar's Nominal Effective Exchange Rate (NEER) was conducive to supporting what it described as an "incipient recovery in the Singapore economy.
"The MAS will therefore re-center the exchange rate policy band at the current level of the (NEER), while maintaining a zero percent appreciation path," it said.
"The width of the band will remain unchanged."