Singapore's economy had its biggest contraction on record last quarter after the SARS virus outbreak emptied hotels such as the Ritz-Carlton Millenia and led to the first quarterly loss at Singapore Airlines Ltd.
GDP shrank 11.4 percent in the three months ended June 30 from the previous quarter, after adjusting for seasonal factors, the trade and industry ministry said.
"This news is disappointing," said Tay Soo How, who helps manage US$490 billion globally at Citigroup Asset Management in Singapore. "We may end up with very close to zero growth for this year."
The report underscores Singapore's need to find new ways to bolster its economy and cut its reliance on electronics exports and the US market. The US buys a fifth of Singapore-made shipments and three-fifths of exports are semiconductors, printers and other electronic goods.
Still, the government said the US$88 billion economy may revive because SARS has abated and manufacturing and exports may be boosted by a recovery in the US, which grew a faster-than-expected 2.4 percent in the second quarter.
The Straits Times Index of stocks rose 0.2 percent, its fourth daily gain, after yesterday's report showed the economy didn't shrink as much as the 12 percent indicated by the government's preliminary estimate last month.
The outbreak of SARS, which infected 238 people in Singapore, killing 33, drove visitor arrivals to the lowest level in more than two decades, and emptied restaurants and shopping malls.
The virus helped cut growth for the full year. Prime Minister Goh Chok Tong on Friday lowered the government forecast for economic expansion for the year to between zero and 1 percent, down from 0.5 percent to 2.5 percent.
SARS emptied nine out of 10 rooms in the Ritz-Carlton Millenia and other hotels as visitor arrivals dropped by two-thirds in April and May.
Singapore Airlines, Asia's biggest carrier by market value, fired workers and cut wages.
The government said the economy may expand as much as 3.3 percent in the second half as US demand for the nation's electronics and other exports pick up.
Shipments from the island rose 19 percent in June and visitors to Singapore rose 43 percent last month from the previous month.
"We are looking for a pretty marked rebound in the second half," said Lian Chia-liang, an economist in Singapore at J.P. Morgan Chase & Co.
As "the U.S. returns to very strong growth that will have strong ripple effects on Singapore's manufacturing sector," Lian said.
The government said the city-state's economy shrank an annual 4.2 percent in the second quarter from a year earlier, compared with its initial estimate of 4.3 percent, and that it expanded 1.7 percent in the first quarter from the year-earlier period.
The nation's jobless rate held at 4.5 percent in the three months ended June 30, unchanged from the previous quarter.
The government reiterated yesterday that the unemployment rate may exceed its target of 5.5 percent.
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