Dreaded R-word knocks once again at Singapore’s door as manufacturing nosedives

Chances of dodging another recession are slim.

Not one month after Singaporeans breathed a collective sigh of relief after the city-state dodged a technical recession by the skin of its teeth, talks of another one is now back on the table once again, and the hapless island nation may not be so lucky this time.

As Singapore’s industrial production plummeted by a worse-than-expected 4.8% in September (its eighth consecutive month of contraction), analysts are saying recurring talks of a technical recession is inevitable.

According to Francis Tan from UOB, assuming that the growth in the services sector remain at the estimated 3% yoy rate, Singapore may be inescapable.

“From the numbers today, 3Q manufacturing activities had contracted 6.2% y/y, slightly worse than the 6.0% y/y contraction that the trade ministry had expected when they reported that Singapore narrowly averted a 3Q technical recession on 14 Oct,” Francis Tan said

Tan adds that the eight consecutive months of decline continue to pose more questions than answers on the global growth slowdown.

“Economic uncertainties plaguing the Eurozone, US and China (our top exporting destinations) remains and will continue to drag on the confidence of manufacturers and exporters. In addition, Singapore’s still-tight domestic labour market remains a supply-side constraint for production,” Tan adds.

Meanwhile, Hak Bin Chua from Bank of America Merrill Lynch concurs that the dismal IP data will give rise to more recession talks.

“The MTI’s flash estimate showed that Singapore only very narrowly missed slipping into a technical recession with +0.1% qoq saar (+1.4% yoy) growth in 3Q. But manufacturing likely contracted at a sharper pace in 3Q (-6.2%) than flash estimates implied (-6%),” Chua said.

“We see high likelihood of a technical recession and expect overall GDP growth to remain weak this year and next,” Chua added.

Chua also said the disappointing manufacturing data would not only give rise to recession talks, but also clamor for more policy easing by the MAS.

“Subdued inflation is providing plenty of room for the MAS to ease if necessary. All things considered, risk is towards further MAS easing, probably at the scheduled April meeting if not before. But we think the MAS is probably reluctant to shift policy intermeeting, unless growth deteriorates sharply in coming months,” Chua said.