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Singapore faces recession risk in second half of 2010

Singapore faces recession risk in second half of 2010

SINGAPORE, Aug 10 — Singapore faces the risks of an annualised contraction in its economy in the second half of 2010 due to a global slowdown but remains on course to be one of the world’s fastest growing countries.

The government kept its annual growth forecast for 2010 at 13 per cent to 15 per cent — its strongest yearly expansion — as demand for electronics and a surging flow of tourists will offset a fall in biomedical production due to plant maintenance shutdowns and a possible shift in output mix.

“It is possible that we could have two quarters of negative sequential growth, which would qualify as a technical recession,” Ravi Menon, permanent secretary of the Ministry of Trade and Industry, told reporters today.

Singapore last went into recession — defined as two straight quarters of contraction — in 2008 when the economy shrank from the second to the last quarter.

“We see this moderation in growth as a healthy normalisation of economic activities,” said DBS economist Irvin Seah. “And even with the growth momentum slowing down, the Singapore economy is still on track to meet our target of 15 per cent growth.”

Gross domestic product in the April to June period soared 24 per cent on an annualised basis, a downward revision from a 26 per cent expansion estimated in July.


The economy also grew 18.8 per cent in the same quarter from a year earlier, versus a 19.3 per cent rise reported last month.

Despite rising prices of food, fuel and vehicles, which could push inflation to 4 per cent by the end of the year, the central bank said on Tuesday the average 2010 inflation rate would stay at “tolerable levels” of between 2.5 per cent to 3.3 per cent.

That means the monetary policy stance of allowing a modest and gradual appreciation in the Singapore dollar remains appropriate, said Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore.

Ong said the Singapore dollar’s rise this year is in line with gains in other Asian currencies against the dollar. The Singapore dollar is up 4 per cent against the US dollar so far in 2010.

The central bank said it was not worried over capital flows to Singapore, viewing it as part of fund flows that reflected strong Asian economies.

Ong also said banks regularly stress-tested scenarios such as interest rate movements and exposures to stocks and property. He said Singapore banks’ exposure to the property industry was well within the limit of 35 per cent of their assets.

Regulators worldwide are increasingly wary about the exposure of banks to property.

China’s banking regulator recently ordered banks to conduct a stress test assuming a fall in house prices of up to 60 per cent, just as policies to cool the sizzling market start to bite. — Reuters

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One Response to “Singapore faces recession risk in second half of 2010”

  1. Kevin Teo says:

    To many of us in Singapore, we are in recessions or a no. of years, or perhaps on and off. GDP rate does not tell the whole picture, it does not say anything about:

    - the income gap between the rich and the poor, or the GINI survey;
    - the real income vs inflation;
    - the welfare of the people, esp. middle to lower income groups;
    - the health of the job market;
    - the costs of living;
    the standard of living;
    - etc,etc.

    By the way, those stress tests for the banks & property markets are used to create people’s confidence, a lot of times, the stress tests are not stringent enough. The recent European banking stress test is so lenient that majority passed, just a show !

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