SINGAPORE: Against the less than favourable economic environment, Singapore’s GDP growth forecast for 2008 has been revised to around 3 per cent from an earlier estimate of 4 to 5 per cent.

The Monetary Authority of Singapore (MAS) said in a release on Friday that economic growth is likely to remain below its potential rate over the next few quarters, with prospects of a recovery in the latter half of 2009 depending significantly on how conditions evolve.

It also cited the latest advance estimates released by the Ministry of Trade and Industry which showed that Singapore’s GDP declined by 6.3 per cent on a quarter-on-quarter seasonally adjusted annualised basis in the third quarter of this year.

The decline for a second straight quarter, means the city-state has entered into a recession for the first time in six years.

The Trade Ministry said Singapore's economy is estimated to contract by 0.5 per cent in the third quarter of 2008, compared to the same period last year.

Trade figures indicated a slowdown that was generally broad based as external shocks were transmitted to the domestic economy via both the financial and trade channels.

Looking ahead, the MAS said the outlook for the global economy has deteriorated and a more severe global downturn cannot be discounted.

The heightened risk aversion and deleveraging in the financial sector, it said, creates new uncertainties for the Singapore economy.

As for inflation, it is projected to come within the 6-7 per cent forecast range in 2008 after declining from 7.5 per cent in Q2 2008 to 6.5 per cent in July-August on a year-on-year basis.

In addition, the CPI has fallen on a quarter-on-quarter basis, easing from 2.1 per cent in Q1 to 1.4 per cent in Q2 and 1.1 per cent in July-August, which reflects a moderation of both external and domestic price pressures.

The MAS said the CPI is expected to trend down in 2009 as the global and domestic economies slow and for the year as a whole, it is forecast to moderate, coming down to around 2 per cent.

In terms of monetary policy, the MAS - which acts as Singapore's central bank - announced its widely expected easing of monetary policy for the first time since 2003.

The MAS said it was shifting its Singapore dollar nominal effective exchange rate from the gradual appreciation band to zero-appreciation.

The Monetary Authority of Singapore which manages the Singapore dollar in a secret trade-weighted band against a basket of currencies also said it will maintain the current level of the policy band, with no re-centring of the band or change to its width.

The move is to slow the rise of the trade-weighted currency to support the export-driven economy.

It added that the MAS stands ready to intervene to dampen excessive volatility in the Singapore dollar should this become necessary.

CNA/sf