News analysis

Gloomy sentiment over Singapore's economy

Lacklustre global growth and disappointing trade figures signal quarters of sluggish growth ahead

It has become almost impossible to find a business owner, market watcher or economist who feels upbeat about the economic outlook.
 

Gloomy sentiment has become par for the course - a mood borne out in a deluge of depressing data.

Lacklustre global growth continues to weigh on Singapore's small, open economy, and disappointing July trade figures out yesterday indicated that the second half of the year will offer little reprieve.

Non-oil domestic exports slid 10.6 per cent in July from a year earlier, far sharper than the 2.5 per cent decline expected by economists.

"When it rains, it pours," said DBS economist Irvin Seah, noting that the numbers "add on to the long list of poor data pointing to the risk of an economic contraction ahead".

Unlike the global financial crisis, this slowdown has not been sharp or severe enough to spark widespread firm closures and layoffs. But the labour market has been showing signs of strain. The jobless rate for Singaporeans and permanent residents was 3 per cent in June, the highest since end-2010. Layoffs hit a seven-year high.

Perhaps most troubling is the uncertainty over when the economy - and sentiment - will turn around.

Chia Yan Min

Earlier this month, the Ministry of Trade and Industry (MTI) said the economy is expected to expand by 1 per cent to 2 per cent this year, in what could be the slowest year since 2009.

This is narrower than an earlier forecast of 1 per cent to 3 per cent. MTI cited risks weighing on global expansion, such as Britain's vote in June to leave the European Union, and a potential sharper slowdown in China.

As growth grinds ever slower, few industries have been spared.

Export-dependent sectors such as manufacturing have borne the brunt of challenging global conditions. The sector - one-fifth of the local economy - eked out a slight uptick in the second quarter, but MTI warned that this may not be sustained.

The oil and gas industry has been especially hard hit by the long decline in global crude prices, leading to fewer projects, reduced profit margins and collection difficulties.

Swiber Holdings' recent collapse - the first major casualty of the oil price slump here - has sparked concerns of potential spillover effects.

About a fifth of manufacturing jobs are linked to the offshore and marine industry.

Financial institutions' exposure to the sector is also a worry. DBS Bank, for instance, said it has about $700 million of exposure to Swiber.

As it is, the financial services sector has been one of the worst performers in recent months, as the lacklustre outlook weighs on bank loan growth.

Even construction, which has so far stayed resilient thanks largely to public projects, is showing signs of faltering. Growth in the sector eased to 3.3 per cent year-on-year from April to June, from 4 per cent in the first quarter, weighed down by a fall in private-sector building.

MTI said firms in the sector are becoming more pessimistic about the outlook and expect growth to weaken in the coming quarters.

Unlike the global financial crisis, this slowdown has not been sharp or severe enough to spark widespread firm closures and layoffs. But the labour market has been showing signs of strain. The jobless rate for Singaporeans and permanent residents was 3 per cent in June, the highest since end-2010. Layoffs hit a seven-year high.

Perhaps most troubling is the uncertainty over when the economy - and sentiment - will turn around.

Major economies like China, Europe and the United States are each grappling with their own issues, so there is no clear global growth driver. Central banks worldwide have cut interest rates to rock-bottom levels in a bid to stimulate economies.

For Singapore, this means more quarters of sluggish growth ahead.

A version of this article appeared in the print edition of The Straits Times on August 18, 2016, with the headline 'Gloomy sentiment over Singapore's economy'. Print Edition | Subscribe