Singapore’s economy is forecast to slump deeply this year at double the rate forecast only two weeks ago by the Government, according to a new report issued yesterday.
The news, a day ahead of the 2009 budget, also reveals a forecast that price deflation could stalk the economy for much of the coming year.
The new forecast, which updates the one issued on January 6, also reveals that the economy fell in a hole in the final month of 2008, as did many economies around the world.
Singapore’s government has already indicated it may dip into its tens of billions dollars of reserves and investments (much of which isn’t performing all that well) to finance jobs and keep the economy on an even keel.
Now we have more of an idea why that up to now heretical act was floated earlier in the week by the country’s senior minister and former Prime Minister Goh Chok Tong. For years those reserves and savings have been inviolate.
No longer, times are too tough to leave them untouched.
Figures released yesterday show there’s a very real possibility the Singapore economy could shrink by up to 5% in 2009, which would put it on a par with Ireland, which, according to the European Commission this week, is facing a similar sized contraction and will be the worst performing economy in Europe this year.
By way of comparison, the bigger, but just as stricken UK economy is forecast to shrink by 2.8% this year and Germany will contract by just under 2%.
Only the US might come close with some economists forecasting a contraction for the full 2009 year of over 3%.
So it’s no wonder Mr Goh was talking about using the "Rainy day money" set aside.
Singapore has consistently argued that the reserves built up in the National Provident Fund and managed by the likes of the Government Investment Co and Temasek Holdings, were sacrosanct and for the future.
"The issue which the Prime Minister and the Minister of Finance is now thinking over, is whether we should go to President, and ask him for approval to use the reserves for extraordinary measures," Mr Goh was quoted in the local press on Monday. Mr Goh pointed out, however, that these were "exceptional times".
"The weather is so bad, and we’ve always said the reserves are for a rainy day. If this is not a rainy day, I don’t know what is a rainy day," he said".
Finance Minister Tharman Shanmugaratnam will unveil this year’s budget plan later today to speed up aid to companies hurt by the global recession and minimize job cuts.
Spending boosts and a big stimulus package of $S20 billion or more could be in the budget. That would be financed by using the reserves.
The country’s Trade and Industry Ministry yesterday issued a new forecast on 2009 growth which contained the dismal news of the slump.
An official told Bloomberg that the country was going through its sharpest and deepest recession, which may be the longest in the country’s history.
And the Ministry said Gross Domestic Product may shrink by between 2% and 5% this year, while inflation could disappear and be replaced by a longish spurt of deflation.
"The Ministry of Trade and Industry (MTI) announced today that Singapore’s GDP growth is likely to be -5.0 to -2.0 per cent in 2009, lower than the -2.0 to +1.0 per cent growth range it had forecast on 2 January 2009.
"The forecast for inflation in 2009 is also revised downwards to -1.0 to 0 per cent."
"Preliminary estimates for the Singapore economy show that real gross domestic product (GDP) contracted by 3.7 per cent in the fourth quarter of 2008, following the decline of 0.2 per cent in the preceding quarter.
"On a seasonally adjusted, annualised quarter-on-quarter basis, real GDP fell by 16.9 per cent, compared to a decline of 5.1 per cent in the third quarter of 2008.
"The manufacturing, wholesale & retail trade, transport & storage, information & communications, and financial services sectors registered further slowdowns compared to the third quarter of 2008," the Ministry said in its release.
"For 2008 as a whole, the economy is estimated to have grown by 1.2 per cent, compared with 7.7 per cent in 2007.
"The manufacturing sector is estimated to have contracted by 4.1 per cent, down from an expansion of 5.8 per cent in 2007.
"Several clusters – electronics, precision engineering, and chemicals – were affected by the rapid decline in demand in Singapore’s key export markets, especially in the last quarter of 2008. Industry-specific factors also exerted a negative impact.
"Biomedical manufacturing was affected by drug efficacy issues and the switch to the production of pharmaceuticals ingredients with lower values during several months of 2008, while the electronics cluster was also impacted by restructuring within the information-communications and consumer electronics industries.
"The construction sector grew by 17.9 per cent in 2008, compared to 20.3 per cent in 2007.
"The healthy level of construction output in 2008 was sustained by robust activity in the residential, industrial and civil engineering building segments.
"Construction demand was also supported by an upswing in the number of public housing and infrastructural projects committed."
The Singapore economy has contracted for three straight quarters, sliding into recession along with Japan, Hong Kong and New Zealand in Asia.
Exports could drop 11% in the coming year (something it will share with Taiwan, Hong Kong, Japan, China and South Korea) after dropping by nearly 8% last yea
