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July 10, 2008

Singapore economy hit by worst contraction
Singapore's economy suffered its steepest decline in five years in the in the second quarter, down an annualised, seasonally adjusted rate of 6.6 percent - much stronger than economists had expected, reported Reuters.

Economists had forecast the economy to shrink about 1 percent in the quarter, hurt by a slump in pharmaceutical production and electronics manufacturing.

Singapore is the first Asian country to report quarterly GDP data and its heavy dependence on trade make the $160-billion economy a good gauge of the impact of a slowdown in the United States and Europe on Asia.

"The drag was almost entirely due to drugs, but we are most likely to see a rebound in drugs in the third quarter and that should pull the GDP number up," said Song Seng Wun, an economist at CIMB. "We have cut out full-year growth forecast to 4.6 percent from 5.7 percent."

The Singapore dollar weakened on the news and was trading at 1.3616 to the US dollar after the data, compared with 1.3588 before.

Song said he expected no change in Singapore's monetary policy at the next review in October because the contraction was caused by undershooting of the biomedical sector and a change in policy would not help.

The advance estimate is largely based on the first two months of the quarter.

"The electronics cluster also registered some decline, mainly because of weakening foreign demand. However, other industries such as transport engineering and chemicals continued to grow," the trade ministry said in a statement. Singapore saw exports drop in May at its sharpest rate in 2-? years.

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