Singapore Facing Its Worst-Ever Recession: Govt

SINGAPORE ~ Singapore said this week it was facing its worst-ever recession, and cut the economic outlook for 2009 to a contraction of between 2.0 and 5.0 percent.

The downgrade is the second this month and reflects a faster and deeper decline in global economic activity, and stronger “spillover effects” on key sectors of the domestic economy, the Ministry of Trade and Industry said on Wednesday.

Its previous forecast ranged from a contraction of 2 percent to growth of 1 percent. The warning came as the city-state suffered its worst quarter-on-quarter fall in more than 30 years.

“The Singapore economy is going through its sharpest, deepest and most protracted recession,” said Ravi Menon, second permanent secretary with the ministry.

Singapore’s worst recession since independence in 1965 occurred in 2001 when the economy contracted by 2.4 percent, figures from the ministry showed.

Data released on Wednesday confirmed a worsening recession in the country, where the economy shrank at a sharper pace in the fourth quarter than the government and economists had forecast.

On a seasonally adjusted, annualised quarter-on-quarter basis, the economy fell by 16.9 percent, after a decline of 5.1 percent in the third quarter and 5.5 percent in the second, the trade ministry said.

“The economy fell off the cliff in the fourth quarter,” said Song Seng Wun, a regional economist with CIMB-GK Research.

The fourth-quarter drop is the largest since records began in 1976.

Economists polled by Dow Jones Newswires had forecast a median 13.1 percent contraction in the economy during the final three months.

Release of the data comes a day before the government unveils its annual budget, which analysts said should contain tax relief and a hefty financial package to help the country weather the recession.

The government is announcing its budget one month early, underscoring the need to react quickly.

“This is the worst ever in terms of the quantum of the contraction,” Song said of the fourth quarter.

He added there is little the government can do apart from cushioning the impact through its budget, which he expects to be “fairly aggressive” to help soften the impact on businesses. There could be tax cuts to ease the pain for households, he said.

Singapore in October became the first Asian economy to enter a recession but since then major economies around the world – including the city-state’s key export markets the European Union and United States – have also been declining.

The city-state is Southeast Asia’s wealthiest economy in terms of GDP per capita but its heavy dependence on trade makes it sensitive to economic disturbances in developed nations.

Key non-oil domestic exports (NODX) fell by 7.9 percent last year after growing 2.3 percent in 2007, the trade promotion agency, International Enterprise Singapore, said in a separate statement.

It said NODX is expected to fall 9.0-11.0 percent this year, partly because of continued weakness in global demand for electronics products, which have been a major component of Singapore’s exports.

Total trade, which rose by 9.6 percent last year to reach S$928 billion (US$619 billion), is seen falling by 17-19 percent.

“The weaker prognosis for Singapore’s total trade in 2009 is based on the worsening global trade environment since November 2008, led by significant decline in demand by most of our major trading partners,” the trade promotion body said.

“The slide in global trade in late 2008 was exacerbated by the global credit freeze, which restricted export finance.”

On a year-on-year basis, the economy declined 3.7 percent in the fourth quarter, which was also worse than the government initially projected and followed a year-on-year fall of 0.2 percent in the third quarter, the trade ministry said.

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