S'pore predicted to go into recession in 1998

S'pore predicted to go into recession in 1998

SINGAPORE (AP): An investment bank has predicted for the first time that Singapore, which has weathered the Southeast Asian economic crisis much better than its neighbors, will go into recession this year.

Santander Investment Securities Singapore forecast in a report made public yesterday that the city-state's economy will shrink by a real 0.3 percent.

"If exporters in the ASEAN countries do not get back on their feet soon, the Singapore export machine will grind to a halt," Santander said, adding that a key weakness is faltering demand from Japan, which receives about 7 percent of Singapore's exports.

The Organization for Economic Cooperation and Development has predicted 3.2 percent growth for Singapore this year, and other independent economists have estimated 3 percent.

"We believe that the Singapore economy will move into recession this year," Santander said in its first report on Singapore since completing a takeover last week of Peregrine Securities Singapore.

The Singapore government, acknowledging economic growth will slow this year, has forecast gross domestic product will rise a real 2.5 percent to 4.5 percent. Last year's growth was 7.8 percent.

Santander listed "three main risks to the current consensus outlook for the Singapore economy." Those are: a delayed export recovery, an unexpectedly large impact from Indonesian turmoil and more pressure on interest and foreign exchange rates than generally anticipated.

Southeast Asian markets for Singapore goods and services also will be hurt by a credit squeeze, augmented by high foreign debt and the higher cost of imported components, Santander said.

"This explains why Singapore Prime Minister Goh Chok Tong has been such an ardent proponent of bilateral and multilateral trade-financing credits for the region and Indonesia in particular," the investment house said.

On Monday, Goh told parliament that US$3 billion of the aid Singapore pledged to the International Monetary Fund's rescue package for Indonesia will go toward financing trade originating in or passing through Singapore.

With the economic outlook in Indonesia darkening, Singapore's "high exposure" to its neighbor will stifle the domestic recovery, Santander said.

Santander also forecast a further drop in the Singapore dollar against its U.S. counterpart, partly as a result of the American currency's growing strength against the Japanese yen and partly to compensate for the decline in other regional currencies.

This would keep upward pressure on domestic interest rates, the report said.

In a report published almost simultaneously, economist Amanda Choy at SocGen-Crosby said the forecast for the Singapore economy was: Slowing imminent, but no recession.

Choy, for the moment one of the more bullish observers, wrote that pessimistic market forecasts are due to misconceptions.

She forecast growth of 4.5 percent for this year, saying that "the market consensus forecast of below 3 percent GDP growth is ... due to misconceptions and poor understanding of what is really driving the economy." Those positive factors, she said, are multinational corporations, U.S. and European Union demand and increased capacity from earlier capital investment.