Singapore economy shrinks on tech slump

The global slowdown in demand for IT products is hurting Singapore's exporters

By CNN's Geoff Hiscock
Asia business editor

SINGAPORE (CNN) -- Singapore's economy shrank 0.8 percent in the June quarter and more pain is to come, its government said Tuesday.

The contraction represents a dramatic downturn for Singapore's export-oriented economy, which grew 4.6 percent in the first quarter of 2001 and a remarkable 11.0 percent in the December 2000 quarter.

Singapore's Ministry of Trade and Industry blamed the global slump in information technology goods and services for the setback, along with the weakness in regional and international economies.

It said the sharp slowdown in the global electronics industry and in all major economies, including the U.S., Japan and Europe, was significantly affecting Singapore's outlook.

The Singapore dollar was at an 11-year low against the U.S. dollar, falling to S$1.833 in afternoon trading.

Slow recovery expected in fourth quarter

"Growth will remain weak in the third quarter, with a slow recovery expected in the fourth quarter," the ministry said Tuesday in releasing its advance GDP estimates.

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It said that in this "adverse environment", it was revising its 2001 growth forecast to 0.5 to 1.5 percent.

In April, the ministry had revised its earlier GDP growth forecast to 3.5 to 5.5 percent.

On Tuesday, it said advance estimates for the June quarter showed a year-on-year decline of 0.8 percent.

It said on an annualised quarter-on-quarter basis, real gross domestic product declined by 10.1 percent.

Link to U.S. technology sector hurting

Singapore relies heavily on exports of electronics and other technology-related items. The U.S. takes about 20 percent of Singapore's exports but weaker demand for integrated circuits is hurting this sector.

"Singapore's economy is more closely linked to the U.S. technology sector than the general economy," the ministry said. "Due to the huge excess capacity built up over the boom years, this sector is weaker and will take longer to recover."

Singapore's goods-producing industries are estimated to have contracted by 6.6 percent in the June quarter.

"The manufacturing sector declined in the second quarter, due largely to the drop in global demand for electronics, while the construction sector recorded flat growth," the ministry said.

But it noted that Singapore's services-producing industries had grown an estimated 2.1 percent.

Singapore dollar weakens

Singapore's dollar was trading weaker at S$1.833 to the U.S. dollar in Tuesday afternoon trade after opening at S$1.827. It was its lowest rate since August 1990.

The currency has slipped about 5 percent in the last year against the U.S. dollar. In July 2000 it was at S$1.75, and until the Asian financial crisis broke in July 1997 it was around S$1.44.

The Monetary Authority of Singapore is due to report Wednesday on its exchange-rate policy.

Leslie Khoo, Singapore-based Asia Pacific economist for IFR, said in a review on Monday that the authority was likely to keep its policy stance "largely unchanged".

"However, we believe the monetary authority's tolerance for a weaker currency [though not a rapid decline] has been growing and will continue to so, given the severe impact of the global slowdown on the export-oriented economy," Khoo said.