SINGAPORE: The Singapore economy may have seen the worst of the downturn in the first quarter of this year. But according to the central bank, the swine flu outbreak has added a new dimension of risk to national growth.

The warning came as the Monetary Authority of Singapore (MAS) released its latest macro-economic review.

Singapore's gross domestic product (GDP) contracted 11.5 per cent from a year earlier in the first quarter of the year, led by sharp declines in exports.

At least eight countries across the globe have seen or are suspecting cases of swine flu. And should the disease spread, analysts say, it will certainly hurt a global economy already struggling to pull out of recession.

But most are quick to note that it is too early to make definite forecasts about any fallout from the swine flu outbreak.

Alvin Liew, economist at Standard Chartered, said: "We think it's too early to tell, given that we don't know the magnitude of the spread, the infection rate, mortality rate. Unless it proves to be a more severe outbreak, we are not revising our forecast for the moment."

But the outbreak is serious enough so far for the MAS to say it has added a new dimension to the downside risks. While the worst of the economic downturn may be over, any recovery will be slow, said the central bank.

Spire Research estimates that swine flu will knock off at most half a percentage point from Singapore's full-year performance.

Leon Perera, group managing director of Spire Research and Consultancy, said: "In a scenario when the pandemic spreads and has a major effect on consumer and business confidence, it may knock off up to 0.5 percentage point off GDP growth, but it's unlikely it will get that far."

Sectors likely to be hurt include tourism and air travel. Companies doing business in Mexico will also feel the pinch.

Mr Perera said: "Singapore will probably be more affected than other locations because it is a very open economy, a great deal of travel in and out of the country - not only just tourism but business travel, including travel to Latin America. It's likely there's more exposure and there may be more cases."

But economists note that Singapore's experience with other episodes of high health risks like SARS means the country is well-prepared.

Mr Perera said: "Singapore is also much better prepared than most countries. Health infrastructure is better. And the procedures and know-how built up from 2003 from SARS will serve Singapore quite well."

Meanwhile, inflation continues to ease for the country. For the whole of 2009, inflation is projected to be between minus 1 and zero per cent.

On a year-on-year basis, the consumer price index (CPI) will turn negative by the middle of the year, due mainly to falling oil prices. However, MAS noted that price declines will be confined to less than 40 per cent of the CPI basket.

Singapore's economy is expected to contract by between 6 and 9 per cent this year, compared to an average 8.2 per cent growth Singapore saw in the years between 2004 and 2007.

Singapore's economy grew by 1.1 per cent last year and 7.7 per cent in 2007.


- CNA/ir