S'pore economy contracts 5.6% in 3Q, outlook bleak

Agence France-Presse, Singapore

The Singapore economy, already in recession, contracted 5.6 percent in the third quarter and the outlook was bleak, the government said Wednesday as it revised its full-year forecast down to minus 3.0 percent.

The worst ever three-month fall for the city-state followed a negative 0.7 percent second quarter gross domestic product (GDP) performance.

"The appalling attacks on Sept. 11 and the resulting train of events have probably tipped the global economy into a recession," Trade Minister George Yeo said.

GDP shrank sharply in the third quarter mainly because of the global downturn in the electronics industry, a key part of Singapore's trade-driven economy, the trade ministry said in a statement.

The goods producing sector fell 15 percent "largely due to a significant decline in the manufacturing sector as a result of the drop in global demand for electronics," it said.

Other sectors of the economy also posted weaker performances in line with the deteriorating economic conditions, with the services industry also turning in negative growth of 0.4 percent.

"In the light of the uncertainty in the global economy, Singapore has now revised its full year growth forecast to minus 3.0 percent" from positive 0.5-1.5 percent, Yeo said.

Singapore, which enjoyed a booming 9.9 percent GDP growth in 2000, "started the year forecasting a growth rate of 5-7 percent. That was in a totally different world," he said.

With the impact of the U.S. war against terrorism hard to predict, "the near-term outlook for the Singapore economy is therefore bleak. The outlook for next year is highly uncertain."

"In view of the sharp economic decline in the second half of 2001, year-on-year growth in the first half of 2002 is likely to stay negative."

The negative third-quarter estimate was computed from figures in July and August and is intended to serve as an early indicator of the full three-month performance.

Yeo said the unemployment rate, now at 4.0 percent, was set to worsen to 4.5 percent by year end and warned "psychologically we are prepared for it to deteriorate further next year".

More than 20,000 jobs are expected to be lost this year, he said.

In response to the worsening economic outlook, the country's de facto central bank, the Monetary Authority of Singapore, said it has decided to widen the range in which it allows the local currency to fluctuate.

The monetary authority sets upper and lower limits within which it allows the currency to fluctuate. The range is set according to a basket of currencies of the country's major trading partners.

Global currency strategist Simon Flint, from Bank of America, said the monetary authority's move will lead to a "de facto depreciation of the Singapore dollar," which will stimulate the economy by making exports cheaper and giving domestic products a price advantage over more expensive imports.