UPDATE 3-Singapore recession deepens, govt cuts 09 outlook

Fri Jan 2, 2009 11:24am IST

(Adds house price data)

By Kevin Lim

SINGAPORE Jan 2 (Reuters) - Singapore's recession deepened in the fourth quarter as the global financial crisis took its toll on manufacturers and the services sector, and the government warned the economy may shrink by as much as 2 percent this year. The economy contracted at a seasonally adjusted, annualised pace of 12.5 percent during the October-December quarter, following a revised 5.4 percent decline in July-September, data showed on Friday.

It was the third consecutive quarter of decline in gross domestic product and was worse than the most pessimistic forecast of nine economists polled by Reuters which was for a decline of 8.6 percent. [ID:nSIN417634]

The government now expects Singapore's GDP to come in between a decline of 2 percent and growth of 1 percent in 2009, lower than the previous forecast of -1 percent to +2 percent made in November.

But some economists are predicting an even deeper recession. "If we are correct, 2009 will mark the most severe recession in Singapore's history, surpassing the Asian Financial Crisis (when GDP contracted 1.4 percent) and the 2001 tech recession," said Citigroup economist Kit Wei Zheng, who predicts the economy would shrink 2.8 percent in 2009.

"This sets the stage for more aggressive fiscal stimulus on the Jan 22 budget, and further monetary easing by MAS (the Monetary Authority of Singapore) in April, or even before."

Singapore, which became in independent country in 1965, last reported a fall in annual GDP back in 2001 when the economy shrank 2.4 percent after being hit by the collapse of the dotcom bubble.

The economy grew 1.5 percent for all of 2008, compared with 7.7 percent in 2007.

From a year ago, fourth quarter GDP fell 2.6 percent following a drop of 0.3 percent in the third-quarter, advance estimates from the Ministry of Trade and Industry (MTI) showed.

WEAKENING DOMESTIC DEMAND

Activity in the manufacturing sector shrank 9 percent in the fourth quarter from a year ago, while year-on-year growth in the construction and services sectors slowed to 13.3 percent and 1.1 percent, respectively, from 18.6 percent and 5.3 percent in the third quarter.

"What is worrying is that the weakness has spread rapidly from the externally-oriented sectors (eg. manufacturing, tourism) to domestically oriented sectors too," analysts at OCBC Bank said in a note to clients.

"The speed of the growth deceleration in Q4 2008 is somewhat disconcerting for construction and especially services, which does portend a growing risk that their respective 2009 growth forecasts may need to be revised downwards."

Singapore reports advance GDP data based largely on information from the first two months of the quarter, and follows up with detailed GDP numbers for the period about five to six weeks later.

Reflecting the slowdown, separate data showed private home prices fell 5.7 percent in the fourth quarter, worsening from a drop of 2.4 in the preceding period. [ID:nSGC000963]

Prime Minister Lee Hsien Loong warned in his New Year message on Wednesday that the global financial crisis had hit the city-state of 4.8 million people hard, and that the economic outlook was uncertain.

"We must therefore prepare for a difficult year ahead, and especially the first half of 2009. Our economy will probably contract further," he said. [ID:nSIN391136] (Additional reporting by Saeed Azhar) (Editing by Kazunori Takada)

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