Singapore's manufacturing sector turned in yet another dismal performance last month, prompting some economists to warn that the risk of a technical recession in this quarter is rising.
They also say there is a growing probability of more monetary easing next month, when the central bank holds its next policy meeting.
The latest manufacturing data, which showed output sliding 7 per cent in August over the same month a year ago, came in way below the 5.3 per cent decline forecast by economists.
Data from the Economic Development Board yesterday showed that July's manufacturing output was also revised downwards, from an initial estimate of a 6.1 per cent decline to a deeper 6.4 per cent fall.
Manufacturing, which makes up a fifth of the Singapore economy, has contracted 4.5 per cent so far this year over the corresponding period a year ago.
There were broad declines last month across almost all factory clusters, except chemicals, which grew 3.7 per cent over August last year. The cluster's growth was lifted by the specialities, petrochemicals and petroleum segments.
The biomedical, electronics, general manufacturing, transport engineering and precision engineering clusters all had declines in output.
Economists say manufacturing's lacklustre August showing has raised the odds of a technical recession - two consecutive quarter-on- quarter declines in gross domestic product - in this quarter.
They note that the economy has been hit by slowing growth in China and rising market volatility. The potential hike in United States interest rates is also adding to uncertainty.
"We think the question should be shifting to whether this is a shallow or deep recession. Our sense is that the third quarter may not yet be the worst quarter," said Bank of America Merrill Lynch economist Chua Hak Bin.
However, Citi economist Kit Wei Zheng said a technical recession might be "narrowly averted" if growth in the service sector helps to make up for weak factory output.
"While the manufacturing recession deepened, July and August data saw a decent sequential expansion on re-export volumes, air passenger traffic, visitor arrivals, financial services and a surge in home sales," he noted.
Dr Chua expects the Monetary Authority of Singapore (MAS) to ease the appreciation of the Singapore dollar at its meeting next month.
The MAS 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 to counter inflation by making imports cheaper in Singdollar terms, while a weaker Singdollar helps exporters, whose goods become cheaper in foreign markets.
Others, like Barclays economist Leong Wai Ho, say it will be a "close call" but expect no change in the central bank's policy.
"Growth and inflation in Singapore have slowed more than expected, but the absence of a clear shock is not enough to trigger further MAS easing... The MAS remains focused on the key medium-term core inflation driver - the tight labour market," he noted.