Singapore's economy had its biggest contraction on record in the second quarter after factory orders fell and the SARS virus emptied hotels. The government signaled it will accept a weaker currency to bolster exports and revive growth.
GDP shrank an annual 12 percent from the previous three months after growing a revised 1.2 percent in the quarter to March 31. That was three times faster than the median forecast of seven economists in a Bloomberg survey for a 3.6 percent decline. From a year earlier, GDP shrank 4.3 percent, the government said, adding growth will resume in the second half of the year.
Singapore's report underlines the economic damage wrought in Asia by SARS, which infected 206 people and killed 32 in the city-state. The outbreak slashed visitor arrivals by two-thirds in April and May, preventing buyers from visiting factories, prompting Singapore Airlines Ltd to fire 414 workers and the 116-year-old Raffles Hotel to cut rates by a third.
"Some new business got delayed" because of SARS, said J.R. Ong, executive director at First Engineering Ltd, which makes plastic and optical parts for Hewlett-Packard Co and Seagate Technology. "Two or three potential customers couldn't visit us."
The 12 percent slide is the biggest drop since the 1970s, when the city-state started collecting quarterly data adjusted for seasonal factors, according to the government's statistics department.
Today's report indicates the economy won't grow any faster than 0.9 percent this year, said Lian Chia Liang, an economist at J.P. Morgan Chase & Co in Singapore, slashing his forecast of 1.3 percent growth. Last year, GDP expanded 2.2 percent.
The Monetary Authority of Singapore, in a twice-yearly policy statement, lowered the target for its currency, following a decline this year. The bank tries to keep the currency within an upper and lower limit, called a trading band. It doesn't disclose details of the trading band.
The central bank also brought forward its next meeting from next January to October. That means it may opt sooner for a further weakness in the local currency to raise the island's export competitiveness if the economy shrinks in the current quarter as well, Standard Chartered Bank's economist Joseph Tan and foreign exchange strategist Claudio Piron said in a research note.
Still, ``tentative signs of recovery suggest that this will not be required,'' the analysts said.
The Singapore dollar fell as much as 0.4 percent to S$1.7616 against its US counterpart after the announcement, according to Bloomberg data.
Services, which account for more than three-fifths of the island's economy, shrank 3 percent in the second quarter, while manufacturing contracted 7.5 percent from a year earlier, today's report said.
Even so, the trade and industry ministry said latest economic data showed the outlook will improve in the next few months and it will announce a new forecast for full-year growth next month. The government expects the US$88 billion economy to expand between 0.5 percent and 2.5 percent this year.
Global tourism and business travel is reviving, following a World Health Organization announcement last week that the SARS epidemic has been contained. That will help boost sales in Singapore's shopping malls, retail stores, restaurants and hotels.
Overseas visitors account for 6 percent of the city-state's US$88 billion economy, and 12 percent of retail sales on the island.