As Singapore relooks 2019 projections, economists warn of possible technical recession

green and white leafed plantsSINGAPORE: With policymakers here reviewing their full-year growth projections, some economists have warned that the Singapore economy could grow slower than initially thought, or even risk falling into a technical recession, as the trade spat between the world’s two biggest economies drags on with no clear end in sight.

Earlier on Thursday (Jun 27), central bank chief Ravi Menon said the current 2019 growth forecast of 1.5 to 2.5 per cent is being reviewed by the Ministry of Trade and Industry (MTI) and the Monetary Authority of Singapore (MAS).



While Mr Menon said it remains too early to tell if revisions to the official growth estimate could fall below the lower end of the forecast range, some analysts reckon that the odds have risen.

“If the official forecast revision comes to pass, it can be anyone’s guess (for) 0.5 to 1.5 per cent or 1 to 2 per cent,” said OCBC Bank’s head of treasury research and strategy Selena Ling.

Ms Ling, a long-time watcher of the Singapore economy, pointed out that the review comes just one month after the the original forecast range of 1.5 to 3.5 per cent was narrowed .



“(This) clearly reflects how the external macro-environment has deteriorated since May with the breakdown of US-China trade negotiations and the rising downside growth risks,” she said.

Comments on a weaker second-quarter growth also “open up a potential can of worms and potentially jeopardises the baseline scenario that the second half of 2019 will see some stabilisation in growth”, she added.

The economy grew by a slower pace of 1.2 per cent year-on-year in the first quarter of 2019 – its lowest growth in nearly a decade.

Some economists, including Ms Ling, had previously predicted a modest pick-up in manufacturing – and in turn GDP growth – later in 2019 on the back of favourable base effects. But this has largely dissipated as the trade conflict roils on, threatening to further disrupt global supply chains, delaying firms from their capital expenditure and hiring plans, and worsening business and consumer confidence.

The increasing likelihood of a “tech war” by the US and China have also heightened the possibility of more pain, economists said.

Echoing similar sentiments, CIMB Private Banking economist Song Seng Wun said “foggy” economic data of late – from the double-digit declines in Singapore’s non-oil domestic exports to the wider-than-anticipated slump in industrial output in May – means that a strong rebound in the second half will be needed to make up for growth.

Given how global growth is losing steam amid a protracted trade conflict, however, that would be “a bold assumption” to make, he said.

“It does make sense for the forecast range to be tweaked again. Even if a lower base from last year might help, it would still be a tough environment at this juncture,” Mr Song told CNA.

“It is realistic to lower the lower-end of that range and forecast for 1 to 2 per cent growth instead.”

Maybank Kim Eng economist Lee Ju Ye estimates that the official forecast range could be downgraded to 1 to 2 per cent as soon as August, when the final second-quarter GDP numbers are due.

She similarly pointed to the recent spate of lackluster economic indicators, which has made it “quite clear that the second quarter will be worse than the first”.

“So far, what we have is data for April and May. And May is when the US-China trade tensions intensified – we may not even have seen the full impact. June numbers may be worse,” she added.

Following Wednesday’s industrial production figures, Maybank had cut its 2019 full-year growth prediction for Singapore to 1.3 per cent from 1.6 per cent previously, citing the contraction in manufacturing and a protracted US-China trade war.

“As such, comments about the review of official estimates are not a surprise,” said Ms Lee.


The economists also flagged the possibility of a technical recession – defined as two straight quarters of quarter-on-quarter contraction – by the third quarter.

Maybank Kim Eng’s downgrade in full-year growth assumes a “shallow” technical recession in the three months to September.

“We don’t think it’s going to be a sharp drop. We are looking at somewhere between zero and negative 0.5 per cent quarter-on-quarter for both quarters,” said Ms Lee.

In her note on Thursday, Ms Ling from OCBC said: “If slower quarter-on-quarter second quarter growth materialises, then the risk of a potential technical recession in third quarter is clearly heightened.”

“We may see a technical recession this year but for the full year, we will still squeeze in some growth,” echoed Mr Song.

However, if trade tensions persist into 2020, recessionary risks could increase, said Mr Song, adding that attention is now on the upcoming talks between US President Donald Trump and China President Xi Jinping at the Group of 20 (G20) meeting in Osaka, Japan.

“Maybe after this weekend, we may have another truce. However, if all these carry through into next year and the US goes for an all-out trade war, then the weakness that we see globally may lead to more economies and labour markets weakening,” said Mr Song.

“If labour market conditions weaken with a pullback in spending and investments, then we will get a real recession.”

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