S'pore economy slows and sees deficit, Goh says

S'pore economy slows and sees deficit, Goh says

SINGAPORE (Reuters): Singapore Prime Minister Goh Chok Tong said on Saturday that second-quarter growth in Singapore had slowed and the rest of the year would be worse.

"After a revised growth of 6.1 percent in the first quarter, (the economy) registered only 1.6 percent in the second quarter. It will slow further in the second half," he said in his national day message.

Singapore celebrates its 33rd year of independence on August 9th. The Prime Minister traditionally addresses the nation on the eve of the celebrations.

Goh said the main cause of Singapore's slow growth was the sharp fall in external demand from its key trading partners in Asia -- Japan, Indonesia and Malaysia.

"External demand accounts for 70 percent of total demand for our goods and services..," Goh said. "So when our external demand falls we are severely affected."

Goh said Singapore's competitive position had also been hurt by the depreciation in the currencies of its neighbours as their exports to the U.S. and Europe had become more competitive.

"The economic crisis has affected Singapore's competitive position," Goh said.

"Our neighbours' weaker currencies have made their wages and other costs much cheaper than ours. This has made their exports to the U.S. and Europe more competitive."

Goh noted in his speech that South Korea, Thailand, Malaysia and Indonesia have seen their currencies depreciate by 35 to 80 percent against the US dollar while the Singapore dollar has depreciated by less than 20 percent.

He added that countries in the region which have built new airports, ports and industrial estates will have surplus capacity and will lower prices to stay competitive or "may even resort to administrative measures or legislation."

Goh said the Asain slowdown presented Singapore with its "most formidable" challenge since independence.

He said Singapore is likely to see its second budget deficit next year as government revenues fall while it continues to spend on infrastructure.

Goh cautioned, however, on Singapore dipping too much into its reserves to kick start the flagging economy.

"As your trustee responsible for these reserves, I am honour- bound to protect them. We must not fritter them away, whatever the pressures we face," he added.

Singapore announced the S$2 billion (US$1.15 billion) stimulus package in June, a move Finance Minister Richard Hu said would result in a budget deficit of about S$800 million.

It was the first time the wealthy city state had a budget deficit since it faced a recession in the mid-1980s.