'Technical recession looms' for Singapore

OCBC economist issues warning, citing US election fallout and other factors

Joggers run past as the skyline of Singapore's financial district is seen in the background. PHOTO: REUTERS

The Singapore economy could sink into a technical recession this year amid fallout from the United States election results, weak global growth and rising market volatility, said OCBC economist Selena Ling.

This could tip over into a full-blown recession next year, given the cloudy outlook, she said at a briefing yesterday.

The economy shrank 4.1 per cent in the July to September period compared with the previous quarter - the biggest slump since 2012.

Another quarter of contraction would push Singapore into a technical recession, defined as two consecutive quarters of decline in economic output.

The economy is projected to expand by 1 to 2 per cent this year, in what is likely to be the slowest year since the global financial crisis.

There are few encouraging signs even for next year. The Singapore economy is facing a growing slate of risks going into 2017 - most notably, uncertainties over the impact of a Trump presidency, Ms Ling said.

While it remains to be seen how much of President-elect Donald Trump's election campaign rhetoric will translate into actual policies, there are concerns that the aggressively anti-trade stance he took while campaigning could weigh on world trade, she noted.

This would be bad news for Singapore's small, open economy, which is already suffering from a slowdown in global trade.

Meanwhile, the US dollar has strengthened significantly against Asian currencies, buoyed by expectations that Mr Trump's plans for huge spending projects will drive up inflation in the US.

As a result, investors are betting that the Federal Reserve will raise interest rates more aggressively next year to keep prices under control.

This is fuelling worries that funds will flow out of Asia to the US, which would lead to even more currency volatility. The greenback has spiked against the Singdollar in the wake of the US elections. One US dollar could buy S$1.42 yesterday, up from S$1.39 on Nov 8.

Ms Ling said small and medium-sized enterprises (SMEs) will be hardest hit as consumers tighten belts amid short-term woes. There are expectations that the 2017 Budget might offer some respite. Ms Ling said there is scope for the Government to provide short- term relief, for instance, by helping SMEs alleviate rental costs, and improving their access to financing.

But the Singapore economy is also facing some longer-term challenges, including remaining competitive in the face of rapid disruptive change, she added.

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A version of this article appeared in the print edition of The Straits Times on November 17, 2016, with the headline 'Technical recession looms' for Singapore. Subscribe