Chart of the Day: The services sector won’t rescue Singapore’s slowing economy

It’s no longer such a stable growth engine.

Singapore is almost surely headed for technical recession as the manufacturing sector falters.

Although some are still hoping that growth in the services sector will be able to keep the country out of recession’s clutches, DBS warns that services will be unable to pick up the slack left by manufacturing.

“Services have always been the stable engine of growth, accounting for about two thirds of the economy. GDP and services growth typically run hand in hand. Unfortunately, the outlook for the services sector is not strong,” said DBS.

Services sector growth slowed to 3.5% YoY in the second quarter, compared to 4.2% in Q1. On a sequential basis, output fell by 1.1% in the second quarter. 

“Being relatively more labour intensive, a domestic manpower crunch has weighed down the sector. In addition, external-oriented services clusters have been affected by the weak global environment,” said DBS. 

For instance, trade related services have been dampened by the moderation in merchandise trade. Loan growth for various segments has also waned on back of expectations of higher interest rates. 

“In addition, a sluggish real estate sector, coupled with risk aversion that has gripped financial markets, has weighed on growth in the business and financial services sectors . Financial services had been the star performer over the past 4 years. When the star is not performing, the odds are against you. In short, the service sector seems unlikely to take up the slack from a weak manufacturing sector and prevent a technical recession overall,” DBS noted.