Singapore growth forecast risks sharper downgrade as Q2 GDP scrapes in at 0.1%

SINGAPORE’S full-year economic forecast could be cut again, amid market fears of a looming recession, as second-quarter flash data out on Friday showed a much deeper slowdown than was feared.

In the latest whammy to predictions, the economy looks set to head to a standstill in the second quarter of 2019, with gross domestic product (GDP) growth of just 0.1 per cent year on year. This marks the slowest quarterly growth since the throes of the Great Recession in mid-2009, when the economy shrank by 1.2 per cent.

It is also sharply cooler than the 1.1 per cent expansion in the first three months, which was revised downwards by a smidgen from an earlier figure of 1.2 per cent.

The latest figure, based on preliminary numbers from April and May, came in well under the median estimate of 1.1 per cent growth put forward by private economists in a Bloomberg poll.

The Ministry of Trade and Industry (MTI) cut its full-year forecast in May, to between 1.5 per cent and 2.5 per cent, after first-quarter data disappointed. It previously guided for growth of up to 3.5 per cent.

But analysts at United Overseas Bank and Maybank Kim Eng now predict that the range will be cut even further, to between 0.5 per cent and 1.5 per cent, while Barclays and Citi expect an even more dismal downgrade, to between zero and 1 per cent. Monetary Authority of Singapore (MAS) chief Ravi Menon had said in June that the forecast is already under review.

Since late 2018, year-on-year GDP growth has cooled to levels last seen during the Great Recession.

On a seasonally adjusted, quarterly basis, second-quarter GDP shrank by 3.4 per cent - a broad-based fall across all industry sectors - compared with 3.8 per cent expansion in the first quarter. The Republic last clocked a quarter-on-quarter dip in end-2018, when it saw a mild decline of 0.8 per cent.

Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye recently raised the spectre of recession - referring to two straight quarters of quarter-on-quarter contraction - in a June 26 report that flagged “a shallow technical recession in the third quarter” on the continued absence of a US-China trade deal.

“We are penciling in a technical recession (no longer shallow), but the risk has shifted towards a deeper recession,” they wrote in an updated note on Friday, while warning that the labour market may also turn sour.

The powerhouse manufacturing sector has led the economic decline, shrinking for the second straight quarter. It saw a year-on-year decline of 3.8 per cent, widening from the 0.4 per cent dip in the quarter before, with the MTI attributing the contraction to lower electronic and precision engineering output.

Still, the quarter-on-quarter, seasonally adjusted decline in manufacturing eased to 6 per cent, an improvement from the 6.4 per cent drop previously.

Meanwhile, the construction sector continued its year-on-year recovery with growth of 2.2 per cent in the second quarter - after clocking 2.7 per cent expansion before - on a rise in public works. But, on a quarterly basis, the sector was still down by 7.6 per cent, reversing the earlier double-digit growth.

Services growth was unchanged at 1.2 per cent, which the MTI said “was supported primarily by the finance and insurance, other services industries, and information and communications sectors”.

On a quarterly basis, though, the services sector shrank by 1.5 per cent, which was also a turnaround from growth of 4.4 per cent in the quarter prior.

Sentiment among watchers has swung towards Singapore’s central bank easing its monetary policy, and allowing a more gradual rise in the Singdollar, at its October policy meeting.

“Potentially, we think the MAS could reverse all of its (foreign exchange) policy tightening from last year and reduce the slope to zero, especially if the Q3 GDP reading implies a technical recession, which is not our base case but cannot be ruled out,” said Brian Tan of Barclays in an update.

DBS chief economist Taimur Baig wrote in a research note that the advance estimates could still be revised upwards on June data, which may have been better, based on Chinese manufacturing sentiment and global freight rates.

“We see some signs of stabilisation, perhaps even a rebound in June,” he said, although he conceded that “policymakers may not, however, take that as a sure sign of a trough, as global uncertainties remain considerable”.

An updated second-quarter GDP print is due by Aug 23, when the MTI will give a fresh prognostication.