Singapore said its economy may shrink as much as 9 percent this year, the most since independence in 1965, as a deepening global recession drives down exports and manufacturing.

The central bank said it would adjust the trading range for the Singapore dollar, effectively lowering the band for the first time since 2003 to revive growth. Exports tumbled for an 11th month amid a slump that has forced Chartered Semiconductor Manufacturing Ltd. to fire workers and the government to reduce taxes and subsidize jobs.

“The situation is really dire and the central bank’s policy will improve sentiment and help the economy,” said Vishnu Varathan, an economist at Forecast Singapore Pte. The policy move “gives them the flexibility to weaken the currency now, and steer it to strengthen when things get better.”

The worst global slump since World War II has pushed Asia’s trade-dependent nations into their deepest slowdown in more than a decade. Thailand’s economy may suffer a bigger contraction in 2009 than the 3 percent decline initially forecast after antigovernment protests led to a state of emergency in Bangkok, Finance Minister Korn Chatikavanij said Tuesday.

The Monetary Authority of Singapore, which uses the exchange rate to manage price stability, said the Singapore dollar had been trading at the lower end of its target range since October. The band would now be “re-centered” to reflect recent levels, it said.

Effective devaluation

“The re-centering effectively translates to roughly a 1.7 percent devaluation of the Singapore dollar on a trade-weighted basis,” said Wai Ho

Leong, a regional economist at Barclays Capital in Singapore. That would be the first effective lowering of the currency band since July 2003, he said.

Southeast Asia’s worst-performing currency this year rose 1.1 percent Tuesday after the central bank said there is no reason for an “undue weakening.” Singapore stopped favoring gains in the local dollar in October and the central bank said Tuesday it would continue to seek neither appreciation nor depreciation.

Inflation would continue to ease in the coming months on cheaper commodities and a weakening economy, the authority said, reiterating a forecast that consumer prices will fall as much as 1 percent or remain unchanged this year.

Forecasts cut

Singapore’s gross domestic product declined an annualized 19.7 percent last quarter from the previous three months, the trade ministry said Tuesday. The contraction was more than double the 9.6 percent drop predicted in a Bloomberg survey, and the biggest since at least 1975.

DBS Group Holdings Ltd. and United Overseas Bank Ltd. lowered their Singapore GDP forecasts Tuesday. DBS predicts the economy will shrink 7.7 percent this year, from an earlier forecast of a 4.8 percent contraction, while United Overseas expects a slide of 7.5 percent.

“The global economy is expected to remain weak in the coming quarters,” the trade ministry said Tuesday. “While there are tentative signs of some stabilization in the housing, financial and manufacturing sectors in the US, they do not point to a clear turnaround in economic activity.”

Singapore’s efforts to prevent job losses by handing out cash to companies have not stopped Chartered Semiconductor, music-player maker Creative Technology Ltd. and Swiss lender UBS AG from firing workers.

Companies probably fired more than 10,000 workers in the first three months of 2009, the Straits Times cited Prime Minister Lee Hsien Loong as saying last week. Singapore Airlines Ltd. has frozen pay and asked employees to take unpaid leave, and publisher Singapore Press Holdings Ltd. has cut wages.

UBS, Switzerland’s largest bank, said Tuesday it would eliminate 100 jobs in Singapore as it cuts about 240 positions from its wealth management division in the Asia-Pacific. Growth in financial services in Singapore slowed every quarter last year, and fell 8.1 percent in the final three months.

Source: Bloomberg