SINGAPORE – Singapore barely eked out year-on-year growth in the first three months of 2023 as a global slowdown began to hit, leading analysts to cut their forecasts for the economy and raising the risk of a technical recession.

Weighed down by the manufacturing sector, the economy grew just 0.1 per cent year on year in the first quarter, slowing sharply from the 2.1 per cent expansion in the previous quarter, advance estimates from the Ministry of Trade and Industry (MTI) on Friday showed.

The figure fell far short of the 0.6 per cent growth forecast in a Reuters poll of economists.

Compared with the previous quarter and seasonally adjusted, the economy contracted by 0.7 per cent, a reversal from the 0.1 per cent expansion in the fourth quarter of 2022.

UOB said in a note that it now thinks “there is a substantial risk” that Singapore may enter into a technical recession – defined as two consecutive quarters of negative growth – in the first half of 2023.

Trade-related sectors were negatively impacted in the first quarter, UOB said, adding that the weaker growth affirms its cautious growth outlook for Singapore this year.

Maybank economist Chua Hak Bin also warned of a technical recession if a boost from China’s reopening after Covid-19 curbs does not materialise in the second quarter.

He noted that the knock-on benefits from China’s reopening have been limited in the first quarter. This is because China’s recovery has so far largely been driven by spending towards domestic services rather than goods, while outbound travel has picked up at a slow pace, held back by flight capacity and passport delays, Dr Chua said.

“We expect MTI to downgrade the full-year gross domestic product growth in May when the finalised first-quarter GDP figures are released,” he added.

RHB senior economist Barnabas Gan downgraded his projections for Singapore’s gross domestic product growth to 2 per cent from 3 per cent for the full year, but he maintained the view that the growth momentum is set to improve in the second half of the year.

MTI in February broadly forecast that the economy will expand by 0.5 per cent to 2.5 per cent this year.

The overall growth last year was 3.6 per cent, a sharp fall from the 7.6 per cent in 2021.

The International Monetary Fund on Thursday said the global outlook remains sombre but China’s reopening will underpin Asia’s economy through an increase in trade and consumption.

Senior economist Alex Holmes of Oxford Economics said the global environment continues to weigh heavily on Singapore’s economy, with the export-orientated manufacturing and services sectors still weak.

The relative bright spots of the economy are accommodation and food services, helped by the return of more tourists, as well as the construction sector, he noted.

Still, he expects growth to struggle for momentum in the quarters ahead as advanced economies weaken.

He added that Friday’s data confirms “our suspicion that our previous growth forecast of 0.7 per cent for this year is too high”, adding that he is likely to revise it to 0 per cent to 0.5 per cent, south of the Government’s forecast.

MTI’s first quarter data showed that the manufacturing sector shrank by 6 per cent compared with the first quarter of 2022, worsening from a contraction of 2.6 per cent in the fourth quarter of last year.

The ministry said the weak performance of the sector is due to a drop in production across all the manufacturing clusters, except for the transport engineering cluster.

On a quarter-on-quarter seasonally adjusted basis, the sector shrank by 5.2 per cent in the first quarter, a reversal from the 1 per cent expansion in the fourth quarter of 2022.

Among the services industries, the wholesale and retail trade and transportation and storage sectors collectively contracted by 1.1 per cent year on year in the first quarter. This is a reversal from the 2.4 per cent growth in the previous quarter.

The contraction was led by the shrinking in the wholesale trade sector that was in tandem with a decline in Singapore’s merchandise exports.

The retail trade sector and transportation and storage sector expanded in the first quarter, with the latter supported by a rebound in the air transport segment as international travel resumes.

A silver lining was the construction sector, which grew by 8.5 per cent year on year in the first quarter, extending the 10 per cent growth in the previous quarter.

The information and communications, finance and insurance, and professional services sectors grew by 1.9 per cent year on year in the first quarter, moderating from the 2.5 per cent growth in the previous quarter.

The remaining group of services sectors – accommodation and food services, real estate, administrative and support services and others – grew by 6.7 per cent, extending the 9 per cent expansion in the prior quarter.