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The BBC's Bridget Fallon
"It's not just Singapore that has been hit by the economic downturn"
 real 56k

Tuesday, 10 July, 2001, 09:43 GMT 10:43 UK
Singapore falls into recession
A Singaporean shop marks down prices
Discounts in Singapore's shops are a glaring sign of recession
Singapore's economy shrank by 10.1% during the three months to June, its second successive quarterly contraction.

Two quarters of falling gross domestic product (GDP) means that the Singaporean economy is now technically in a recession.

The second-quarter contraction has turned annual GDP growth negative - a drop of 0.9% year on year - for the first time since the pan-Asian economic crisis of 1997.

The slowdown is blamed on exceptionally weak global demand for high-tech equipment, an industry on which Singapore is heavily reliant.

Manufacturing, half of which is high-tech, accounts for one-quarter of Singaporean GDP.

And Singapore is particularly vulnerable to the ebb and flow of the global economy, since more than two-thirds of its industrial production is exported.

The Singapore dollar has plumbed a series of 11-year lows, to about 1.835 against the US dollar, in trade over the last few days.

Nasty surprise

The Singaporean authorities had been expecting a slowdown ever since the outlook for the international technology sector turned sour in the middle of last year.

Singapore by night
Singapore is heavily reliant on trade
But the figures were worse than expected.

They prompted the trade and industry ministry to slash its economic growth forecast for this year down to 0.5-1.5%, from the 3.5-5.5% estimated in April.

At the start of 2001, the ministry had forecast 5-7% GDP growth.

Liberals

During Asia's 1997 economic crisis, many governments in the region raised trade barriers and increased regulation, in an attempt to slow the outflow of foreign capital.

This time, however, Singapore seems determined to accelerate liberalisation.

At the end of last month, the Monetary Authority of Singapore, the territory's central bank, unveiled the second phase of a financial deregulation plan announced two years ago.

More foreign banks will be allowed to open branches in Singapore.

And all five of Singapore's biggest banks - long protected from outside competition - are now engaged in takeover bids.

A revival of the financial sector, the government hopes, could go some way to compensate for the feeble performance of export-oriented manufacturing.

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