DPM Heng says Singapore is not headed for a full year recession. Here’s what we do know.

Gwyneth Yeo

Singapore’s economy grew by a marginal 0.1% year on year (y-o-y) in 2Q2019, far below the 1.1% growth seen in 1Q2019, and below economists’ estimates of the same. The advance figures were released by the Ministry of Trade and Industry on July 12 and were based on the figures in the months of April and May.

The figures translate to a GDP contraction of 3.4% on a quarter on quarter (q-o-q) seasonally adjusted annualised basis, compared to the 3.8% expansion in 1Q2019.

This was the lowest GDP growth seen since 2Q2009 when the country’s GDP contracted by more than 1%, while the world was in the worst financial crisis in recent history. This sparked fears that Singapore would enter a technical recession if the pattern continued, a sentiment which Deputy Prime Minister Mr Heng Swee Keat rebutted in a Facebook post on the same day.

“The latest advance GDP estimates released by MTI today reflects the heightened uncertainties and risks in the global economy, especially with the US-China trade tensions,” DPM Heng explained in his post.

“We are not expecting a full-year recession at this point, and there remains areas of strength in our economy. These include the information & communications sector, and the construction sector. We are prepared for the cycles the economy will go through. The Government is monitoring the situation closely, and is working with employers and unions to prepare for all scenarios.”

 

What pockets of strength was DPM Heng referring to?

 

The construction segment was the strongest performer for the quarter, expanding 2.2% compared to 2Q2018, largely due to the greater volume of public sector construction projects. However, on a q-o-q seasonally adjusted annualised basis, the segment contracted 7.6%.

The services producing sectors had grown by 1.2% y-o-y, unchanged from 1Q2019. MTI attributed that to the growth in the finance & insurance sectors, the information & communications sectors, as well as the education, health & social services, the public administration & defence, and the arts, entertainment & recreation segments. Even then, this segment reported a 1.2% contraction on a q-o-q, annualised and seasonally adjusted basis.

 

Manufacturing continues to falter

 

The manufacturing segment was the main reason for the smaller GDP growth figure, as the segment contracted 3.8% y-o-y, and 6% q-o-q on an annualised, seasonally adjusted basis in 2Q2019. The trend continued from the 0.4% y-o-y and 6.4% q-o-q contraction in the previous quarter. “The contraction was due to output declines in the electronics and precision engineering clusters, which more than offset output expansions in the rest of the manufacturing clusters,” said MTI in its press release.

Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye explained that the manufacturing segment had “fallen victim to the US-China trade war” and expects things to get worse for a longer period of time. “Manufacturing outlook for 3Q remains bleak as the US-China trade war broadens to export controls, which threatens to worsen the disruption to supply chains. The latest tech conflict between Japan and South Korea could also exacerbate the tech downcycle,” they said in a note on July 12.

 

More bad news

 

Singapore’s external trade figures did little to assuage market watchers. Singapore’s non-oil domestic exports (NODX) fell 17.3% y-o-y in June, after the 16.3% y-o-y decline in May. These figures were released by Enterprise Singapore on July 17.

The figures are worrying as the steep decline in NODX was dragged by both the electronics and non-electronics products. In particular, electronics export levels had hit “a record low since data was available from 1997” and “all major products posted double-digit declines”  according to Chua and Lee of Maybank Kim Eng. “This is in line with the weakening manufacturing sector.”

Total trade had fallen during the month of June, as both imports and exports declined.

With the exception of the US, Singapore’s exports to major trading partners had fallen, with the steepest declines for Hong Kong, China, and the European Union, said Enterprise Singapore in a release on Wednesday. Non-oil re-exports also fell 2.8% y-o-y in June, compared with the 5.0% y-o-y growth in May.

Maybank Kim Eng’s Chua and Lee noted that this is the first time NORX – which acts as a proxy to wholesale trade services – has seen a decline in 15 months.

 

Is Singapore entering a recession?

 

Maybank Kim Eng’s Chua and Lee seem to think so. “We recently cut our GDP forecast for 2019 to 1.1% and expect a technical recession in the third quarter,” they said.

“Given the recession risk and softer core inflation, we expect the MAS to ease to a neutral bias or zero appreciation slope of SGD NEER (from current modest & gradual appreciation stance) at the October policy meeting,” said the duo.

“The growth and export outlook remains bleak as the trade war broadens to a tech war and a US-China trade deal remains in limbo,” they concluded

 

Do you think a Singapore recession is coming? Tell us on our ZUU online Singapore Facebook page.

(By Gwyneth Yeo)

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