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SINGAPORE: Singapore's economy could contract by as much as two per cent this year, the government said on Friday after data showed a deepening recession in the trade-dependent economy.
The forecast marks a downgrade from the government's previous estimate, made in November, which ranged between a contraction of 1.0 per cent and an expansion of 2.0 per cent in 2009.
"The global economic crisis has worsened since November, with sharp declines in global demand, trade and investments," the Ministry of Trade and Industry said in a news release.
It also cited a sharp fourth-quarter contraction in the Singapore economy for the weaker forecast.
The ministry cited the World Bank - which points to a 2.1 per cent decline in global trade volume in 2009, the first contraction in 26 years - and analysts who have shaded down their growth forecast for the US, Europe and Japan by about one percentage point.
It also took into account the growth outlook for the regional economies, which has also deteriorated, with more economies now expected to register negative or flat growth next year.
These developments, said MTI, will affect the sectors in the Singapore economy that rely on the movement of goods and services in the region, such as the wholesale & retail sector and the transport & storage sector.
Manufacturing will be weighed down by falling demand in the developed economies, while financial services will see a sharp slowdown reflecting weak financial markets and credit growth.
"The slowdown in these sectors will spread to the domestically-oriented segments of the economy, such as property, retail, and business services," said the ministry in its news release.
The weaker prognosis for the Singapore economy in 2009 is also based on the sharp contraction seen in the fourth quarter of 2008 where advance estimates, based largely on data from October and November, point to a fourth quarter gross domestic product (GDP) contraction of 2.6 per cent in real terms over the same period in 2007.
On a seasonally adjusted, annualised quarter-on-quarter basis, real GDP fell by 12.5 per cent, compared to a decline of 5.4 per cent in the third quarter of 2008.
The MTI announcement said the manufacturing sector declined by 9.0 per cent compared to the same period in 2007, mainly because of a sharp drop in the output of electronics and precision engineering and the continued weakness in global demand for electronics products.
Chemicals output also fell during the quarter as a result of slowing external demand, as well as temporary plant maintenance shutdowns.
Biomedical manufacturing output was also lower, reflecting the production of pharmaceutical ingredients with lower values compared to the same period in 2007.
The services producing industries are estimated to have grown by 1.1 per cent in the fourth quarter, slowing down from a 5.3 per cent increase in the third quarter.
The collapse in world trade severely impacted wholesale trade and transport and storage.
Growth in financial services weakened on the back of declines in trading activities in foreign exchange and stock brokerage, fund management, and Asian Currency Unit (ACU) business.
The construction sector grew by 13.3 per cent in the fourth quarter of 2008, slower than the growth of 18.6 per cent in the preceding quarter. Construction output was mainly weighed down by a contraction in industrial building and private housing activity.
For 2008 as a whole, the economy is estimated to have grown by 1.5 per cent, compared with 7.7 per cent in 2007. This figure is lower than MTI's forecast of around 2.5 per cent in November 2008.
The manufacturing sector is estimated to have contracted by 3.7 per cent, down from an expansion of 5.8 per cent in 2007.
The services producing industries and construction sector are also expected to register slower rates of growth compared to 2007, at 5.3 per cent and 17.3 per cent respectively in 2008.
- AFP/CNA/sf
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