Last year, chemicals factory boss Erman Tan took his employees on a cruise to Penang. This year, Mr Tan says the best he can offer them is a video of the Malaysian trip.

Singapore's economy is expected to grow at its slowest pace in a decade this year, and some experts are predicting a recession next year, as the US-China trade war looks set to hit the export-reliant city-state harder than others in South-east Asia.

This has prompted some economists to raise bets on the Singapore central bank easing monetary policy at its next meeting in October, or even out of cycle, especially if the US Federal Reserve were to cut interest rates next month.

There is also speculation that the government could provide incentives to boost growth, but businesses like Mr Tan's do not expect fiscal or monetary policy to be enough to arrest an economic decline that is mostly the result of a global slowdown.

"Many times you rely on yourself," said Mr Tan, chief executive of Asia Polyurethane Manufacturing, which is cutting costs as customers in China hold back orders.

Easing monetary policy may not be enough

With revenues down 20 per cent last year, his employees can forget about sailing around tropical islands. "This year, we will watch the video like a virtual (experience). Let them put on goggles," he quipped.

To be sure, parts of the economy, such as construction and private consumption, have held up, supported by an upward wage pressure from foreign worker restrictions and large long-term building projects.

But with exports being equivalent to about 200 per cent of Singapore's gross domestic product, a much larger weighting than that in neighbouring Malaysia and Indonesia, bumping up domestic consumption is unlikely to boost growth meaningfully.

Singapore must expect some fallout from global trade disruption, Prime Minister Lee Hsien Loong told reporters in Bangkok over the weekend.

"You cannot just step on the gas and speed up and make up for a less favourable external environment," PM Lee said.

The uncertainty is prompting businesses to cut costs as they prepare for a drawn-out battle between the world's two biggest economies.

"No one wants to invest now because they want to see what happens in the trade war," said Mr John Kong, chief executive of building materials supplier M Metal, which employs 64 people.

Mr Kong has asked his workers to turn off the air-conditioning when they leave for lunch and to avoid printing in colour.

NOT OUT OF THE WOODS

Singapore's economic data has been grim lately.

Electronics exports, a major driver of Singapore's growth over the past two years, saw their biggest decline in more than a decade, hit by a global downturn in the semiconductor industry, data showed last week.

Overall exports in May declined the most in more than three years as shipments to China slumped.

In the labour market, the number of retrenchments rose 40 per cent in the first quarter of this year compared to a year ago, driven by cuts in the manufacturing sector, according to official data released this month.

The Monetary Authority of Singapore may ease its currency-focused monetary policy for the first time in nearly three years.

But a more accommodative stance will not be enough to reinvigorate the economy, said CIMB Private Banking economist Song Seng Wun, as a weaker Singapore dollar will not necessarily push up exports.

"Singapore businesses won't suddenly become so competitive that we are going to be selling a lot more of our goods and services," he said.

The Finance Ministry also has limited space to help, given already-low tax rates, along with numerous incentives and cost offsets and an expansionary Budget this year.

"The awkwardness is that the economy isn't really meant for huge additional infrastructure spending," said Mr Rob Carnell, chief economist at ING. "There's a lot of expenditure that goes on continuously in Singapore."

Further stimulus could come in the form of tax cuts and more rebates but factory operators are not waiting for the government to come to their rescue.

"You, as the manufacturer, have to find a way to boost sales," said Mr Sam Chee Wah, general manager at Feinmetall Singapore, whose products are used in the testing of semiconductor wafers, a component in microchips.

Mr Sam said he has been preparing for a tech slowdown since last year - holding back hiring and major capital investments. He is now considering offering discounts or delayed payment terms to customers.

Ms Sian Fenner, lead economist at Oxford Economics, warned: "We are not out of the woods yet. We haven't seen the worst."

REUTERS