November 28, 2008

Singapore's central bank warned the city-state's economy, which slid into recession in the third quarter, will continue to weaken, hurting corporate profits and sparking job cuts."The economy has slowed down sharply and is expected to weaken further in the period ahead," the bank, known as the Monetary Authority of Singapore, said in a report Friday. "Slowing economic activity will be manifested in reduced corporate earnings and household income, while the unemployment rate is expected to rise.The government said last week that the island's export-dependent economy shrank 6.8 percent in the third quarter from the previous quarter, hit by the global downturn, after contracting 5.3 percent in the second quarter. The government expects 2.5 percent growth this year and economic activity next year to range between a 1 percent contraction and 2 percent growth.Local banks will likely experience rising bad loans and falling profits, but avoid a major crisis thanks to solid balance sheets, the central bank said.Singapore's banks have avoided the large writedowns that some of their counterparts in the U.S. and Europe have faced this year because they had only limited exposure to securities linked to U.S. mortgages or failed brokerages Bear Stearns and Lehman Brothers."Bank asset quality is likely to deteriorate and non-performing loans should rise moderately," the central bank said. "Loan growth will moderate and profitability of banks will be constrained." ADVERTISEMENT"We do not expect these challenges to be severe or to significantly undermine the soundness of Singapore's financial system.The country's non-oil exports, which account for about 70 percent of gross domestic product, have plunged in the second half of the year as demand from the U.S., Europe and Japan dried up. Exports, led by electronics and pharmaceuticals, fell 15 percent in October while industrial production dropped 13 percent last month.