Singapore GDP growth to fall to 0.9% by end-2019 as technical recession risks loom

MAS might soon intervene and ease monetary policy.

Singapore's economic growth is tipped to grind to a halt to 0.9% by the end of 2019 following a dismal showing in Q2, according to Fitch Solutions, which earlier projected the economy to grow by 2.2%.

Also read: Singapore's export and manufacturing woes spur economic slowdown in 2019

The city state's GDP growth contracted by 3.4% QoQ but grew by a measly 0.1% in Q2 following 1.1% in the previous quarter. The slowdown in the manufacturing sector deepened after contracting 3.8% from just -0.4% in the preceding quarter. Bright spots include the construction sector which held up after sector growth slowed to 2.2% and services sector even expanded by 1.2%, reflecting global trends where manufacturing and exports remained under pressure even as services remained resilient. 

"[T]he risk of a technical recession is increasing and could materialise if our expectations for a modest recovery in H219 does not play out," Fitch Solutions said in a report. Technical recession is defined as growth contracting for two consecutive quarters on a QoQ basis. 

Also read: Singapore could face shallow recession by Q3

With downside risks increasing, the government may step in to provide fiscal support in addition to handouts unveiled in February's budget address. "For now, handouts to Singapore citizens have yet to be fully delivered and, when delivered, we could see a rebound in domestic demand in the second part of the year, albeit at a sluggish pace," according to Fitch Solutions, adding that several megaprojects that are expected to commence during the second part of the year would support the resilient construction sector.

The Monetary Authority of Singapore (MAS) may also be compelled to step in and ease monetary policy potentially by flatting the slope of the Singapore dollar’s nominal effective exchange rate (S$NEER) policy band to a zero degree of appreciation at its bi-annual meeting in October.

"While we have held the view since the beginning of the year that MAS would stand pat in 2019, after increasing the slope of the S$NEER twice in 2019, the slowdown in Singapore’s external and manufacturing sectors poses substantial risks to our view, and we will probably revise it over the coming weeks," Fitch Solutions said. "Such a revision would imply a weaker Singapore dollar, which would help to support the external sector."