(Updates with comment from economist in fourth paragraph.)
Oct. 14 (Bloomberg) -- Singapore cut its economic growth forecast for this year and predicted a further slowdown in expansion in 2012 as the global outlook weakens, prompting the central bank to ease its monetary policy stance.
Gross domestic product may increase 5 percent this year, compared with an earlier forecast range of 5 percent to 6 percent, the trade ministry said in a statement today. The Monetary Authority of Singapore, which uses the island’s dollar as its main tool to manage inflation, said it will reduce the slope of the policy band of its currency and continue with a modest and gradual appreciation.
The risk of another global recession erased $10 trillion of equities worldwide last quarter and prompted officials from China to Indonesia to boost fiscal measures or cut interest rates. With a potential Greek default threatening to disrupt world financial markets, Singapore is trying to stimulate growth just six months after its last monetary tightening, and the government said this week it will increase spending in the next five years.
“We expect central banks across the region to ease given increasing signs of a sharper global downturn,” Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, said before the releases. “The smaller, more open economies are seeing the hit from the external slowdown. If things do turn for the worse, we can expect the Singapore government to respond with fiscal measures in the coming months.”
The Southeast Asian nation’s economy increased an annualized 1.3 percent last quarter from the previous three months, when it shrank a revised 6.3 percent, the trade ministry said. GDP expanded 5.9 percent from a year earlier, after rising 1 percent the previous quarter.
The Singapore dollar, the fourth-worst performing Asian currency in the past month, rose 0.6 percent to S$1.2708 against its U.S. counterpart at 8:11 a.m. local time today. It had reached unprecedented levels since the central bank said in April it would allow further appreciation to tame price gains, trading below S$1.20 in July.
The Singapore monetary authority guides the local dollar against a basket of currencies within an undisclosed band. It adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.
The island, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, is among the first countries in the region to report third-quarter data. Asia’s growth has slowed since the second quarter, the International Monetary Fund said yesterday as it reduced forecasts for regional expansion this year and next.
The global slowdown has prompted some Asian central banks to start cutting interest rates or refrain from increasing borrowing costs. Pakistan and Indonesia have lowered rates this month while the Bank of Korea left borrowing costs unchanged yesterday for a fourth straight month.
The MSCI Asia Pacific Index of stocks has slumped about 14.8 percent this year. The Singapore’s benchmark Straits Times Index has dropped 14.3 percent in the same period, led by Neptune Orient Lines Ltd., Southeast Asia’s biggest container carrier, and CapitaMalls Asia Ltd., an owner of shopping malls across the region.
--Editors: Brendan Murray, Stephanie Phang
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