SINGAPORE: Singapore on Friday further downgraded its growth forecast for this year and said the economy could contract in 2009, after weaker than expected third-quarter GDP figures.

Next year, the city-state expects its GDP to range between a contraction of 1.0 per cent and growth of 2.0 per cent, in view of increased uncertainties in the external environment.

In a statement released on Friday, Singapore’s Ministry of Trade and Industry (MTI) said it has also moderated the GDP growth forecast for 2008 downwards to around 2.5 per cent.

This year’s growth forecast was earlier revised from 4 to 5 per cent to around 3 per cent in October.

MTI said economic growth in the developed economies had slowed down, with several countries already in recession.

Consumer and business confidence indicators across the major economies are weak. The contraction in global demand has hit regional economies too.

As a result, Singapore’s trade volumes and other indicators of regional demand, including visitor arrivals, have fallen.

MTI said all these developments would further dampen Singapore’s economic growth in the remaining months of 2008.

In releasing its third quarterly report, MTI said Singapore’s GDP contracted by 0.6 per cent in year-on-year terms.

On an annualised quarter-on-quarter basis, growth declined by 6.8 per cent, compared to a fall of 5.3 per cent in the second quarter.

MTI said the largest contraction came from the manufacturing sector, with the decline led by the electronics and biomedical sciences (BMS) segments.

It said growth in the services sector had started to moderate. Services-producing industries grew by 5.3 per cent in the third quarter, compared to 7.1 per cent in the previous quarter.

MTI said the plunge in stock markets worldwide since mid-September and disruptions in the global credit markets started to affect many of the services and trade-related sectors, especially financial services, wholesale trade, and transport and storage.

It added that Singapore’s economy is expected to face a broad-based slowdown in 2009, with the financial services sector expected to remain weak in 2009.

Irvin Seah, economist, DBS Bank, said: “Overall, the economy is heading into a very rough patch. We already had some pretty difficult times this year. Next year, is going to get tougher.

“Although we’d like to talk about recovery, light at the end of the tunnel, but at the end of the day, we must recognise that the downside risk to growth continues to remain high. It’s likely to get worse before getting better. First half for next year is likely to be the weakest half of the year, especially in the first quarter of the year.”

Although some recovery might occur in the third quarter of 2009, DBS said it is unlikely to be significant. The risks are clearly on the downside for export-dependent Singapore.

Philip McNicholas, economist, IDEAglobal, said: “It takes a lot longer to get consumer sentiment back up than it does for it to go down. People will be more averse to spending because they will be looking at housing prices, particularly in the US, seeing them go down.”

But amid the gloomy forecasts, there is one bright spot. For 2009, inflation has been revised downwards from 2.5 to 3.5 per cent to 1 to 2 per cent, due to falls in global commodity prices and the lower than expected annual values of public housing properties.

The Monetary Authority of Singapore says it is comfortable with the current monetary policy stance, and has no plans to change it before the next review.

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