SINGAPORE - Singapore avoided a technical recession, with the economy growing by a better-than-expected 4.4 per cent year on year in the third quarter of 2022, but economists warn that the road ahead is bumpy.
Analysts are generally expecting the economy to weaken in the fourth quarter, and say 2023 will see "below trend growth" because of high global inflation, tighter central bank monetary policies and geopolitical uncertainties.
Singapore’s growth in the July to September quarter, which eased slightly from the 4.5 per cent expansion in the previous quarter, was led by a pickup in the services sectors that more than offset the slowdown in manufacturing, advance estimates from the Ministry of Trade and Industry (MTI) showed on Friday.
A technical recession was averted as the economy grew 1.5 per cent quarter on quarter on a seasonally adjusted basis, a turnaround from the 0.2 per cent contraction in the second quarter.
A technical recession is broadly defined as two consecutive quarters of quarter-on-quarter contractions.
Based on the flash data for the third quarter, Singapore’s gross domestic product expanded by 4.3 per cent for the first three quarters of 2022.
This means full-year growth could easily come in at the higher end of the official 3 per cent to 4 per cent growth forecast, economists said.
OCBC Bank chief economist Selena Ling upgraded her forecast for 2022 growth to 3.7 per cent year on year from 3.3 per cent, while RHB senior economist Barnabas Gan raised his to 3.7 per cent from 3.2 per cent.
That said, both economists said that GDP for 2023 will be “below trend”.
Mr Gan kept his 2023 GDP projection unchanged at 3 per cent, while UOB said it expects growth to fall to 0.7 per cent on the back of broad-based slowing next year.
OCBC forecast 2.5 per cent growth for 2023, but noted that this is if there is no recession in the United States, euro zone and Britain.
UOB’s position is that it expects the United States and European economies, which are key end markets for Singapore, to enter into a recession in the next six to 12 months amid aggressive monetary policy tightening.
MTI in August cut Singapore’s growth outlook for 2022 to 3 per cent to 4 per cent, from a previous projection of 3 per cent to 5 per cent.
Earlier this week, the International Monetary Fund revised down its 2022 global growth forecast and warned of heightened recession risks in 2023 for many economies.
OCBC’s Ms Ling said high global inflation will push central banks in the world to tighten monetary policy, which will intensify the drag on economic activity.
She added that growth in Singapore’s major trading partners will slow to below trend but stay positive and that this “suggests that prospects for Singapore’s manufacturing and some trade-related sectors have dimmed”.
The silver lining is that domestic-oriented and travel-related sectors remain resilient. They are propped up by strong household balance sheets and the tight domestic labour market, which should see sustained wage growth.
Services in accommodation, food, real estate, administrative and support were the best performing sector as a group, expanding 9.2 per cent year on year from 4.5 per cent a year ago and 7.6 per cent in the second quarter.
The services sector as a whole expanded 6.1 per cent, faster than the 4.8 per cent increase in the second quarter, with growth recorded in all segments. Activities in these sectors continued to be supported by the lifting of domestic and border restrictions.
The key manufacturing sector, however, saw slower year-on-year growth, expanding by 1.5 per cent compared with 5.7 per cent in the previous quarter. On a quarter-on-quarter seasonally adjusted basis, manufacturing contracted 3.3 per cent, reversing from the 0.4 per cent growth in the second quarter.