The gloom blanketing Singapore's economy is likely to deepen but an outright recession remains unlikely, the central bank said yesterday.
The Monetary Authority of Singapore (MAS) said negative business sentiment has become more pervasive and unemployment is expected to rise even as wages moderate.
However, signs of weakening business activity remain confined to certain industries and the slowdown is not as dire as it was during the global financial crisis, it said in its latest macroeconomic review.
The twice-yearly review gives MAS' analysis and assessment of macroeconomic developments affecting the Singapore economy.
The outlook for the country's key trading partners such as the United States and Japan has weakened discernibly this year, meaning the Singapore economy will likely see "a protracted period of modest growth" in the quarters ahead, said the central bank.
MAS noted business sentiment has worsened this year, though layoffs in the past few quarters were largely contained within trade-related industries such as electronics and precision engineering.
With lower labour demand and supply, total job creation this year is expected to stay modest. As such, overall and resident unemployment rates are likely to rise slightly, MAS said. Redundancies could also continue to rise in sectors facing weak external demand and undergoing restructuring.
Economists warned of more weakness ahead. DBS economist Irvin Seah said first-quarter numbers were bolstered by a lift in pharmaceutical output, but this is unlikely to spill over to other sectors.
UOB economist Francis Tan said: "People are expecting a long winter. So they're holding back on investments and spending, and as a result the weak outlook can become self-fulfilling. It's a vicious circle."