Business leaders see bigger risk of sustained slowdown

Employees working at a wafer production line on Sept 5, 2014.
Employees working at a wafer production line on Sept 5, 2014. ST PHOTO: KUA CHEE SIONG

Their sentiment mirrors economists' expectation of poor third-quarter growth

The risk of a protracted economic slowdown is growing, as local companies buckle under a combination of tepid global growth, mounting costs and a tight labour market, business leaders say.

The Ministry of Trade and Industry's advance estimates for third-quarter economic growth, to be released on Wednesday, will shed more light on exactly how the economy is faring, but the numbers do not look encouraging.

Some economists have already warned that Singapore likely slid into a technical recession - two straight quarter-on-quarter declines in economic output - in the last quarter.

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China is slowing down, and it is our largest trading partner. The US recovery is also not strong, according to the latest jobs report, and Europe is also lacklustre.

MR VICTOR TAY, chief operating officer of the Singapore Business Federation

The manufacturing sector has been the main drag on growth, contracting about 4.5 per cent so far this year over the corresponding period a year ago.

Factory output makes up a fifth of Singapore's economy.

Economists tip that economic growth for the three months to Sept 30 will come in at just 1.2 per cent year-on-year, the slowest quarterly rate since 2012, and a sign that the economy is moderating after some turbulent times.

Sentiment among businesses mirrors the downbeat data.

Mr Victor Tay, chief operating officer of the Singapore Business Federation, said there is a risk that conditions may worsen and companies are not optimistic.

"China is slowing down, and it is our largest trading partner. The US recovery is also not strong, according to the latest jobs report, and Europe is also lacklustre," he said.

Singapore International Chamber of Commerce chief executive Victor Mills agreed, noting that "when the world sneezes, we catch a cold".

"We all knew 2015 would be a challenging year, and this has been borne out by the sluggish growth experienced in many sectors and many markets. Businesses everywhere are cutting costs," he added.

Mr Tay said many respondents to the Singapore Business Fede-ration's third-quarter small and medium-sized enterprises sentiment survey said they are not optimistic about the outlook.

"Most businesses have seen volumes drop, and many of them have put hiring on hold," he said.

A combination of a weak economy and low inflation has contributed to some economists' expectations that the central bank will ease the appreciation of the Singapore dollar at its meeting this week, to help support growth.

The Monetary Authority of Singapore uses the exchange rate as its main tool to strike a balance between controlling inflation from overseas and laying the foundations for economic growth.

A stronger currency helps counter inflation by making imports cheaper in Singapore dollar terms, while a weaker Singdollar helps exporters, whose goods become cheaper in foreign markets.

Citi economist Kit Wei Zheng said the central bank is likely to stand pat on its existing policy of a modest and gradual appreciation of the Singdollar against a trade-weighted basket of currencies, but noted that it will be a "close call".

While a manufacturing recession is "likely inevitable", there is still a chance that the service sector may help to lift the economy out of a third-quarter technical recession, he said.

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A version of this article appeared in the print edition of The Straits Times on October 12, 2015, with the headline 'Business leaders see bigger risk of sustained slowdown'. Print Edition | Subscribe