UPDATE 1-Singapore in recession, economy may shrink in 2009

(Updates with details, quotes)

By Neil Chatterjee and Daryl Loo

SINGAPORE, Nov 21 (Reuters) - Singapore's economy is seen growing around 2.5 percent this year and could shrink next year, as financial services and its exports are expected to be hit by a weaker global economy, the government said on Friday.

Singapore's gross domestic product shrank a worse-than-forecast 6.8 percent in the third quarter on a seasonally adjusted annualised basis, final data showed, confirming the country entered into a recession.

The government forecast the economy could slow to between minus one percent and plus two percent growth next year, sharply down from a previous forecast of below 4-6 percent growth. It previously saw 2008 growth at 3 percent.

Singapore's central bank said after the data that its monetary policy stance as announced last month was still appropriate and that it had no plans for a change in policy ahead of the next scheduled review in April.

"The figures were not unexpected as this is a realistic expectation of a shrink in GDP next year," said Kit Wei Zheng at Citigroup. "We think expectations of an imminent change to monetary policy is still somewhat premature."

Singapore's central bank said last month it was shifting to a zero appreciation or neutral bias for its currency from a policy that allowed for gradual appreciation. The move is intended to halt the rise of the currency, loosening monetary conditions.

The Singapore dollar, the central bank's main monetary policy tool, strengthened slightly versus the U.S. dollar to 1.5292 versus 1.5321 before the data.

Economists had expected the figures to confirm a previous government flash estimate of a 6.3 percent contraction. Eight economists forecast a median 2.25 increase for full year growth.

Singapore was the first country in Asia to fall into a recession, often defined as two consecutive quarters of economic contractions, with Japan and Hong Kong having followed.

Singapore's heavy dependence on trade, with non-oil domestic exports contributing about 70 percent of the $165-billion economy last year, makes it a good gauge of how the global slowdown is affecting Asia.

"The data from everywhere else has been getting worse, the picture from Japan, Taiwan and the U.S. has shown deterioration in recent data. Today's revision was pretty modest," said David Cohen of Action Economics.

"You could see them remaining patient. But the current global weakening is significant enough to motivate a special move in monetary policy."

Singapore's government is expected to spend more to shield the country from the global downturn, which could swell its budget deficit to be three times larger than forecast in the current fiscal year, the finance minister said this week.

It would be funded from a S$6.4 billion ($4.2 billion) surplus accumulated in the fiscal year that ended last March.

Economists said that personal and corporate income tax cuts may also be on the cards for next year's budget, which has been brought forward a month to January. (Additional reporting by Saeed Azhar and Matthew Webster; Editing by Jan Dahinten)