Singapore faces its worst-ever recession and on Wednesday cut this year's economic outlook after the city-state suffered its biggest quarterly fall on record, the government said. 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.
The government forecast shrinkage of between 2.0 and 5.0 percent for this year, which follows a previous estimate of a contraction of 2.0 percent to growth of 1.0 percent. For 2008 as a whole, the economy grew an estimated 1.2 percent, the ministry said, compared with 7.7 percent in 2007. "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 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.
Manufacturing, in particular poor performance by the electronics sector, led the fourth-quarter fall with a year-on-year decline of 10.7 percent, DBS Group Research said. Release of the data came a day before the government unveils its annual budget, which analysts said should contain tax relief and a hefty financial package to help weather the recession. "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 country'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 gross domestic product 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. "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.
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. The Economic Development Board on Wednesday released manufacturing data for December, which showed output down 13.5 percent from a year ago, in the third straight month of contraction for the key sector.