GDP may shrink 6 to 9%

MTI's Advance Estimates

THE Ministry of Trade and Industry (MTI) announced this morning that it expects Singapore’s GDP to contract by 6.0 to 9.0 per cent this year, lower than the contraction of 2.0 to 5.0 per cent that it had forecast on Jan 21.

Advance estimates for the Singapore economy indicate that economic activity slowed down sharply in the first quarter of the year.

On a seasonally adjusted annualised basis, real GDP contracted by 19.7 per cent compared to the previous quarter, worse than the 16.4 per cent contraction in the fourth quarter of last year.

Compared to the same period last year, real GDP is expected to contract by 11.5 per cent, compared to the 4.2 per cent contraction registered in the last quarter.

MTI’s earlier forecast had factored in the likelihood of a weak first quarter but the advance estimates indicate that actual GDP growth will undershoot earlier expectations by a significant margin.

The decline in the first quarter of this year affected every sector, with the exception of the construction sector.

Falling external demand late last year and early this year has severely affected domestic manufacturing output.

In year-on-year terms, the manufacturing sector is estimated to have contracted by 29.0 per cent in the first quarter, compared to the 10.7 per cent contraction in the last quarter of last year.

The manufacturing decline was led by the electronics and precision engineering segments but the chemicals cluster and the biomedical manufacturing cluster also saw large declines.

With most of Singapore’s key trading partners still in recession, the manufacturing sector will continue to remain weak for the rest of the year.

The services producing industries contracted by 5.9 per cent in year-on-year terms.

The collapse in global trade in recent months severely affected the wholesale and retail trade sector and the transport and storage sector in the first quarter of this year.

For the rest of this year, these sectors will continue to be weighed down by the poor prospects for global trade.

As a result of falling global economic activity, the World Trade Organisation has forecast that world trade will contract by 9 per cent (by volume) this year — the worst performance since World War II. The hotels and restaurants segment also contracted because of lower tourist arrivals.

Financial services also continued to contract but at a more moderate pace compared to the previous quarter.

The construction sector was the only sector that showed signs of robust growth. It is estimated to have grown by 25.6 per cent in the first quarter quarter of this year, supported by the strong pipeline of committed projects in both housing and infrastructure.

The ministry says that the global economy is expected to remain weak in the coming quarters. While there are tentative signs of some stabilisation in the housing, financial and manufacturing sectors in the US, it adds, they do not point to a clear turnaround in economic activity.

In recent months, the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development have successively slashed their growth forecasts for this year for the world, the developed economies and regional economies.

Taking into account the sharp deterioration in the first quarter of this year, and the weak global outlook for the rest of the year, the ministry says that it is revising the economic growth forecast for this year to -9.0 to -6.0 per cent.

From TODAY - Tuesday, 14-April-2009