Is a Technical Recession to Hit Singapore’s Economy?

With analysts forecasting a rocky path ahead that will include a technical recession, economic growth has stumbled in Singapore.

While a technical recession would be two quarters of quarterly contraction, a recession is defined as two consecutive quarters of on-year economic contraction.

According to final data released by the Ministry of Trade and Industry (MTI) on Thursday down from 2.0 percent in the previous quarter, Singapore’s gross domestic product (GDP) grew by 1.1 percent on-year for the third quarter.

But, weakening from a 0.1 percent on-quarter expansion in the second quarter, the economy contracted by 2.0 percent on a quarterly basis.

Compared with S$1.4310 prior to the release, with the greenback fetching as much as S$1.4361 Singapore dollars, the Singapore dollar fell to its lowest levels since January after the figures.

Economists were however not assured despite both the on-year and on-quarter final figures were an improvement on the advance estimates released earlier this month.

“Today’s print does not detract from the fact that sequential growth still remains entrenched in negative territory and the economy still runs the risk of a technical recession in the fourth quarter,” Weiwen Ng, an economist for ANZ, said in a note on Thursday.

Narrowing a previous forecast of 1.0-2.0 percent and forecasting the island-nation’s economy would grow 1.0-1.5 percent in 2016, even the government doesn’t hold out much hope for a steep recovery. It forecast “modest” growth of 1.0-3.0 percent in 2017.

But the “central view” was that the economy would avoid a technical recession in the fourth quarter, said MTI Permanent Secretary Loh Khum Yean on Thursday according to a Reuters report.

But ANZ’s Ng said the economy likely wasn’t headed for a full-blown calamity even if there were a technical recession.

“The extent of contraction will be mild and more modest than during the decline during the 2008/09 global financial crisis,” he said.

But betting for Singapore’s, known as “The Little Red Dot” for its small size on the world map, ability to avoid a technical recession was not the government alone.

A technical recession was “highly unlikely,” said Joseph Incalcaterra, an economist at HSBC. He however added that “it’s not necessarily something to rejoice about” as it was mainly because of the base effect of lower figures in the previous periods.

With three straight quarter-on-quarter contractions under its belt for the first time since the Asian Financial Crisis in 1997-1998, Singapore’s services sector was already in a technical recession, he noted.

As the trade-dependent country would see less benefit from any uptick in U.S. economic growth, Incalcaterra expected the economy would slow heading into next year.

“Growth in the U.S., even though it’s been relatively stable, it’s much less import intensive than it was in the past,” he said.

But caution against reading too much into the single on-quarter contraction was sounded by at least one economist.

“GDP growth in Singapore is highly volatile. As a result, the third-quarter contraction is not on its own cause for alarm,” Krystal Tan, an Asia economist at Capital Economics, said in a note on Thursday.

But she added, “the economy faces a number of headwinds, which suggests any recovery will be disappointing.”

(Adapted from CNBC)

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Categories: Economy & Finance

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