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Singapore sees economy slowing down

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September 23, 2008

Impact of US Finance System Meltdown:
Singapore sees economy slowing down

Singapore's full-year economic growth may dip below its earlier forecast of between 4 and 5 percent due to the impact of the US financial crisis, the city-state’s trade and industry minister said Monday.

Minister Lim Hng Kiang was speaking on the sidelines of a business forum, said last week's massive upheavals on Wall Street will lead to tightening credit conditions and slower economic growth around the world, local news agency Channel News Asia reported.

"This has impacted our growth prospect, we are now thinking that we can grow at between 4 to 5 percent, probably the lower end of the forecast, closer to 4 percent or may even dip below 4 percent, depending on how the financial crisis pans out over the next few weeks and months," he was quoted as saying.

Government data showed Singapore's GDP contracted 6 percent on-quarter in the second quarter.

Lim's comments came after Singapore's Finance Minister Tharman Shanmugaratnam on Sunday said that a future technical recession in Singapore could not be ruled out.

This is the first time that the Singapore government has said Singapore's economic growth could fall below its forecast.

Just last month, the government trimmed its official growth forecast for Singapore's economy to 4 to 5 percent from 4 to 6 percent previously.

However, the prospect of slower-than-expected economic growth will give Singapore's central bank more room to ease monetary policy at its next meeting in October by letting the Singapore dollar rise at a slower pace, reported Reuters.

The central bank, which sets policy by managing the Singapore dollar in a secret band against a basket of currencies, may ease policy because inflation has peaked at a 26-year high of 7.5 percent, and growth is slowing, Reuters quoted some analysts as saying.

Singapore is especially vulnerable to a downturn in global demand because trade is a key driver of the economy -- non-oil domestic exports were worth about three quarters of the economy in 2007.

A technical recession, defined as two consecutive quarters of economic contractions, looks increasingly on the cards for Singapore as many analysts expect the economy to shrink in the third quarter on falling electronics and drugs exports.

Singapore's economy shrank 6 percent on an annualised basis after seasonal adjustments in the second quarter.

On Monday, in an apparent response to the financial turmoil hitting investment banks in the US, Singapore Exchange said it would tighten rules to discourage "naked" short-selling as part of a global move to stem the selling of shares by speculators who do not own the securities.

Traders who cannot deliver shares they sold will now face a penalty of 5 percent of the value of the failed trade subject to a minimum of S$1,000 ($710). This is in addition to the current processing fee for buying-in of S$30 per contract.

"Cumulative short-selling of individual share securities without the discipline of borrowing to cover delivery obligations, may threaten the orderliness of our market," SGX said in a statement.

Short-sellers are investors who sell shares they do not own in the hope of buying them back at a lower price to make a profit. Those who did not borrow the securities in advance of the sale are "naked" short sellers.

SGX will publish a list of buying in securities and the volume of shares sought, at 11 am Singapore time every day to provide stock investors with more information, the bourse operator said.

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