Global downturn will hit hard on Singapore

Reprinted from Business Times

(SINGAPORE) 10 Oct 2008, Economists look into 2009 and stare into more gloom, SMEs warned of possible contraction; some predict easier monetary policy

Expect the global downturn to hit Singapore hard, as GDP growth in Q4 and 2009 weakens, economists said at a Singapore Business Federation seminar yesterday.

They also warned SME managers of the worst-case possibility of a contraction next year.

Some predicted an easing of monetary policy allowing the Singapore dollar to depreciate. They were speaking ahead of two key announcements today - advance GDP data for the third quarter, and an exchange rate review from the Monetary Authority of Singapore (MAS).

'This downturn is unlike previous ones,' said CIMB-GK economist Song Seng Wun.

'It shouldn't be compared to the Asian financial crisis or the dotcom bubble, where there were still pockets of growth. What we now see is a synchronised slowdown across the world,' he said.

His base case forecast for GDP growth is 2.5 per cent for this year, and 0 to 2 per cent for 2009.

Anticipating that accelerated fiscal spending takes time to work its way through the economy, whereas falling demand hits headline GDP rates far quicker, Mr Song's worst case projection for 2009 is a negative 3 to 5 per cent in GDP growth.

Slowed growth and tapering inflation has led many to expect MAS to shift to at least a neutral stance, from the hawkish policy adopted in April to curb inflation.

OCBC economist Selena Ling said, 'The SGD has been trading at the lower end of the band, so there's actually room for the MAS to re-centre lower.'

This 'double-edged sword' though would lead to an interest rate rise. 'There is no lack of liquidity yet, though I think MAS will likely inject cash to ensure the interest rate doesn't surge excessively,' she said.

Mr Song added that Singapore's relatively strong corporate sector, the government's fiscal surplus and consumers who are not heavily in debt are favourable silver linings in these 'very trying times'.

Also, while job creation will slow, employment is unlikely to fall sharply with the integrated resorts contributing jobs, and the relative resilience of the construction sector serving to cushion, though not offset, recessionary effects.

Although most SMEs at yesterday's seminar said banks' tightened lending had not hit them yet, Singapore Manufacturers' Federation president Renny Yeo said this will likely be more keenly felt when the renewal of leases for their facilities comes round.

Mr Song said the fundamental question of how to restore confidence remains. 'We can cut interest rates to zero but if banks refuse to lend, it doesn't solve the problem.'

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