Q2 growth slumps; full-year recession not expected, says Heng Swee Keat

But analysts warn of possible technical recession as growth slows to lowest in decade

The latest Ministry of Trade and Industry flash estimate showed Singapore's economy grew 0.1 per cent year on year in the second quarter, and shrank by 3.4 per cent on a quarter-on-quarter basis, prompting economists to warn of a heightened possibility of a technical recession. PHOTO: ST FILE

Singapore's economic growth in the second quarter slumped to its worst showing in a decade, far below what analysts had anticipated.

Growth slowed to 0.1 per cent in the second quarter, according to flash estimates by the Ministry of Trade and Industry (MTI).

Deputy Prime Minister Heng Swee Keat, however, put out word yesterday that a full-year recession is not on the cards at this point.

Mr Heng, who is also Finance Minister, said in a Facebook post that the Republic is "prepared for the cycles the economy will go through" and the authorities are working with employers and unions to prepare for all scenarios. For now, he does not expect a recession in which the economy for 2019 will shrink compared with the year before, he said.

Trade and Industry Minister Chan Chun Sing added in a separate Facebook post that Singapore remains confident its fundamentals will help it ride out current challenges despite near-term headwinds.

The country's investment pipeline keeps it assured that it is on the right track, he added, even as the economy saw its slowest growth since it contracted by 1.2 per cent in the second quarter of 2009, during the Great Recession.

The latest quarterly figure was a far cry from the revised 1.1 per cent expansion last quarter, which analysts expected would be matched this time.

This prompted warnings of worse to come. They pointed to a deeper technical recession - or two consecutive quarters of slowdown - which could hit employment growth and worsen retrenchments.

HSBC economist Joseph Incalcaterra called the latest quarterly figure a "harbinger of further growth deterioration across the region".

On a quarter-on-quarter seasonally adjusted annualised basis, Singapore's economy shrank 3.4 per cent, changing course from its 3.8 per cent growth in the three months before. There was weakness across all key sectors, which contracted from the first quarter.

Mr Incalcaterra said: "What surprised us is how broad-based the deterioration was in Singapore, suggesting that unlike other neighbouring economies, domestic-facing sectors are not strong enough to offset external headwinds."

Manufacturing was the key drag, shrinking 3.8 per cent from the previous year and 6 per cent from the last quarter. ING chief economist Robert Carnell said the manufacturing dip this time has "strong drivers", with Singapore's highly export-driven economy leaving it very exposed to the trade war between the United States and China, as well as the broader slowdown in world trade.

The risk of a technical recession looks to be growing, said Ms Selena Ling, head of treasury research and strategy at OCBC Bank. Maybank Kim Eng economist Chua Hak Bin added that a deeper technical recession could hit employment growth and worsen retrenchments in manufacturing and trade-related services.

Ms Ling noted an "emerging softening" in services, which grew 1.2 per cent year on year this time compared with 2.9 per cent this time last year. This suggests consumer confidence may be dented and people are tightening their purse strings. "Given the importance of the service sector as a jobs engine, we are wary if this could start to impact hiring intentions if sentiments remain lacklustre into the second half of the year," she said.

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Ms Ling added that the odds now are higher that the Republic's central bank, the Monetary Authority of Singapore (MAS), will ease monetary policy in October, a move that could help Singapore exports.

A Reuters poll yesterday found that seven in 11 economists expect MAS to loosen policy in October, with four others forecasting no change. Some, like Mr Carnell, believe an imminent move is probable, as waiting would put the economy "in greater than necessary jeopardy".

Policymakers here are already reviewing their 1.5 per cent to 2.5 per cent growth forecast for the year, and some like Dr Chua expect the MTI to downgrade the range to 0.5 per cent to 1.5 per cent.

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A version of this article appeared in the print edition of The Straits Times on July 13, 2019, with the headline Q2 growth slumps; full-year recession not expected, says Heng Swee Keat. Subscribe