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Singapore has warned that the continuing crisis in global finance and trade will trigger the city state’s worst economic plunge on record this year – a nosedive that today forced the central bank into a move amounting to a one-time currency devaluation. Singapore’s unprecedented economic contraction between January and March was described by analysts as “horrendous”. First quarter GDP shrank 11.5 per cent compared with a year earlier – a pace that far outstripped analysts’ predictions. But worse, said traders in Singapore dealing rooms, was the government’s dramatic reduction in its own GDP forecasts for the full year. Where previously the financial authorities had predicted a contraction of between 2 and 5 per cent, they now believe that the degree of shrinkage could come in at anywhere between 6 and 9 per cent. It was the third such revision of economic forecasts within the last five months, suggesting that even within the limited context of a tiny city state, the economic impact of worldwide financial turmoil has been nearly impossible to assess. The new government prediction, which was more bearish than consensus forecasts in the markets, sent economists scrambling to re-calculate their own outlooks for Singapore and what one told The Times were the “diminishing prospects of an early recovery”. The Trade Ministry said that recent tentative signs of stability in, for example, the US housing market, did not yet amount to clear signs of a turnaround. In a statement on its website, the Monetary Authority of Singapore (MAS) – the central bank – said that “considerable downside risks to growth remain.” That warning was among the reasons the central bank used to justify an easing of monetary policy for only the second time since 2003. Monetary policy shifts in Singapore are engineered via a change in the way the central bank fixes the value of the Singapore dollar. The currency moves within a trade-weighted band which is set by the MAS and whose exact formula remains a tightly-guarded secret. By moving the entire band lower, as the central bank did today, the currency undergoes an instant devaluation – artificially weakened as a shock-absorber against ongoing worldwide turmoil. Currency strategists said that because the MAS had not broadened the trading band as well as lowering it, it was signaling that it would not allow the local dollar to fall too far. Singapore’s business model, say economists, has been especially badly mauled by the financial crisis: the industries that once drove growth so strongly – finance, shipping, pharmaceuticals and manufacturing – have all been disproportionately hit by the slump in consumption, trade and commodity demand around the world. Song Seng Wun, an economist at CIMB told reporters that today’s GDP numbers reflected a “free fall in external demand”. Figures released today by Singapore’s trade promotion agency confirmed the first quarter misery, logging a 17 per cent March drop in exports and further revising down its outlook for overseas shipments in the current year. Some economists did take the view, however, that the first three months of 2009 may have marked the absolute worst of the crisis, and that stimulus measures in China and other economies may signal an end to the collapse in trade. Analysts at Credit Suisse believe that the financial crisis may trigger an exodus of expat workers, reversing Singapore’s once vigorous efforts to encourage immigra