IF anything, the latest economic numbers for Singapore have all but set the stage for a 'big bang' Budget later this month, as well as the probable easing of monetary policy. Last week, the government announced worse-than-expected 2008 GDP growth of 1.5 per cent, and lowered its forecast for Singapore's 2009 growth to range between a 2 per cent contraction and one per cent growth.

The Singapore economy suffered its sharpest decline in seven years - GDP fell 2.6 per cent in Q4 from a year ago, more than the most pessimistic forecasts. Economists say the Singapore economy could be headed for its worst quarterly contraction on record in the first quarter of 2009, and experience its most severe recession this year, given how sharply both the manufacturing and services sectors have been hit by the global downturn.

In contrast to a year ago - when combating inflation was the main focus and the Singapore dollar was the key weapon - monetary policy is cast to play a supporting role this time around. This is because the key problem for the local economy is weak demand and not export competitiveness. Before the release of last week's numbers, market watchers were mostly of the view that the current neutral monetary policy stance announced by the Monetary Authority of Singapore (MAS) at its last policy review in October 2008 was appropriate. However, the severity of the economy's contraction as revealed by the latest figures provides grounds to argue that a modest weakening of the Singapore dollar - while not the cure - could still provide some temporary relief to exporters. So expectations may shift to a further easing of monetary policy by the MAS at its policy meeting in April, or even earlier.

All eyes are now on the upcoming Budget, which has been brought forward by a month to Jan 22. If the theme of last year's Budget was on the longer-term development of the Singapore economy and its competitiveness, this year's focus will firmly be on tackling the economic challenges at hand. As Prime Minister Lee Hsien Loong has indicated broadly, the Budget will aim to keep viable companies afloat and help Singaporeans stay employed.

Economists have penned their expectations: giving cash or loans to help companies' cash flow, including rebates on rent and utilities, income and property taxes; increasing the government's risk-sharing role and making it easier for small firms to obtain loans; bringing forward previously deferred public projects; reductions in rentals, utilities, other government fees and charges; more assistance for individuals and families, especially for the retrenched and low-income. Expenditure focus would likely be on education, skills upgrading and retraining, R&D and infrastructure.

If Singapore's economic policy-makers were indeed saving their bullets in last year's Budget, now is the time to fire away.

This article was first published in The Business Times on January 06, 2009.