The Business Times, 11 Aug 2022, Thurs 5:30 PM
By Tessa Oh
SINGAPORE’S updated second-quarter growth figures surprised on the downside as the economy shrank 0.2 per cent quarter on quarter, but neither authorities nor private-sector economists expect this to herald a technical recession.
Ministry of Trade and Industry (MTI) chief economist Yong Yik Wei told reporters at a Thursday (Aug 11) morning briefing that growth is expected to return to a “slight positive” in the third and fourth quarters – therefore avoiding a technical recession, defined as 2 consecutive quarters of quarter-on-quarter contraction.
Still, given the weakened global economic environment, it should not be surprising to “see some negatives” for quarter-on-quarter growth from time to time, she added.
In an MTI release on Thursday, Singapore’s Q2 gross domestic product (GDP) growth was revised downwards to 4.4 per cent year on year – slower than the earlier advance estimate of 4.8 per cent, but still an improvement on the 3.8 per cent growth recorded in Q1.
On a seasonally-adjusted quarterly basis, GDP contracted 0.2 per cent, reversing from Q1’s growth of 0.8 per cent. MTI’s Yong attributed this partly to downward revisions in manufacturing sector figures, in particular for the electronics and chemicals clusters, the latter of which “came down a bit weaker than expected”.
The ministry also narrowed its official full-year growth forecast to between 3 and 4 per cent, from the previous range of between 3 and 5 per cent, after taking into account
Singapore’s economic performance in the first half of 2022 – when growth averaged 4.1 per cent year on year – as well as the latest global and domestic economic developments.
Private-sector economists concurred that a technical recession is unlikely to be on the cards, but warned that it cannot be ruled out entirely given the shaky global economy.
“Singapore will likely not see a technical recession in 2022. However, any further deceleration in momentum in the third quarter may be enough to tip Q3 2022 quarter-on-quarter growth to negative territories,” said RHB economist Barnabas Gan. He expects second-half growth to slow to 2.3 per cent year on year, and full-year growth to come in at 3.2 per cent.
Similarly, OCBC chief economist Selena Ling said that the risk of a potential technical recession “cannot be ruled out, as any further moderation in manufacturing momentum – especially given the high base last year – would mean that the services sector would have to do the heavy lifting from here”.
“But regional and domestic consumer sentiments are highly dependent on the sustained health of the job market and fickle market conditions,” added Ling, who expects Q3 growth to be 4.1 per cent year on year and 0.2 per cent on a seasonally-adjusted quarterly basis. She maintained her full-year growth projection of between 3.5 and 4 per cent.
The global economic environment has deteriorated further since May, and downside risks “remain significant”, said Permanent Secretary for Trade and Industry Gabriel Lim at the briefing.
These include escalations in the Russia-Ukraine conflict; further supply chain disruptions if geopolitical tensions in the region worsen; deteriorations in the Covid-19 pandemic; and financial stability risks if there are “disorderly market adjustments” to monetary tightening in advanced economies.
As such, the ministry expects a softer outlook for some outward-oriented sectors, including chemicals and wholesale trade given China’s weak economic outlook; and water transport as well as finance and insurance, due to a projected slowdown in major external economies.
But with Singapore having removed most Covid-19 curbs, aviation- and tourism-related sectors are expected to see continued improvement. The easing of travel restrictions has also bolstered the recovery of the professional services sector as firms can now better engage overseas clients, said MTI.
Maybank economists Chua Hak Bin and Lee Ju Ye expect full-year growth of 2.8 per cent, just below MTI’s official forecast range, on the back of a weak second half: “Our GDP forecast factors in significant growth slowdown to 1.3 per cent in the second half, versus 4.1 per cent in H1 ‘22.”
“The boost from the reopening tailwind will dissipate, while global headwinds, including rising US and global interest rates, China’s slowdown and a probable Europe recession will dampen exports and trade-related services,” they said, adding that high living costs and rising domestic interest rates are expected to curtail consumer spending.
Despite the gloomier revised Q2 figures, most analysts have not changed their expectations of further policy tightening at the Monetary Authority of Singapore’s (MAS) October meeting.
“We believe inflation will dominate their agenda in the near term, not growth. As such, no pause is likely in the next coming months,” said HSBC economist Yun Liu. She expects MAS to steepen the slope of the Singapore dollar nominal effective exchange rate policy band to 2.5 per cent, from 1.5 per cent currently, by the end of Q2 2023.
Headline inflation was 5.9 per cent year on year in Q2, accelerating from 4.6 per cent in Q1. On a quarter-on-quarter, seasonally-adjusted basis, headline inflation came in at 2.1 per cent, faster than the 1.6 per cent recorded a quarter ago.
Barclays economists Brian Tan and Shreya Sodhani expect October to bring both a third upward recentring of the policy band and a steepening of the band’s slope by another 50 basis points. They are also not ruling out another off-cycle move, after the MAS’s surprise July recentring.
Manufacturing and “other services” – which include education, health and social services, as well as arts, entertainment and recreation – were the main drivers of Singapore’s growth in Q2, contributing 1.2 percentage points and 0.6 percentage point respectively.
The manufacturing sector grew 5.7 per cent year on year in an extension of Q1’s 5.5 per cent growth, as expansions in transport engineering, general manufacturing, electronics and precision engineering offset declines in chemicals and biomedical output.
Construction growth picked up to 3.3 per cent, compared to 2.4 per cent previously, on the back of expansion in both public and private sector construction output.
The overall services sector expanded by 4.8 per cent, against 4.7 per cent in Q1. Food and beverage services saw the biggest increase, due to a low year-ago base amid pandemic curbs. Accommodation services was the only industry which contracted in Q2.
Separately, Enterprise Singapore significantly bumped up its full-year trade forecast for the second time this year: total merchandise trade is now projected to grow 15-16 per cent in 2022, instead of 8-10 per cent, while non-oil domestic exports are now projected to grow to 5-6 per cent, from 3-5 per cent.
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