Singapore to avert technical recession in Q3: analyst

The economy is tipped to grow 0.4% YoY and 2.1% QoQ saar in Q3.

Singapore is expected to avert a technical recession in Q3 2019, as the economy is tipped to post growth of 2.1% QoQ saar and 0.4% YoY amidst slight improvement in the manufacturing sector, reported DBS Group Research. On a full year basis, GDP growth is poised to hit 0.7%.

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

A technical recession is defined as growth contracting for two consecutive quarters. In Q2, the economy slowed to a mere 0.1% after GDP growth hit a decade-low in the previous quarter at 1.3%.

Inflation is expected to average 0.5% for the full year period and rise 1.1% in 2020. Spikes in oil prices was cited as a key driver of inflation, with a 10% rise expected to lift consumer price index inflation by around 0.3 ppt.

Like its regional neighbours, Singapore is grappling with a slowing growth rate. Domestic indicators like a weakening services sector, moderating loan growth and soft labour market has weighed on headline growth. Output gap turned even more negative in Q2. In particular, job vacancy to unemployed person ratio fell below one and employment growth dropped to a three-year low.

Decline in billings of semiconductor equipment and global shipment of semiconductors eased. Likewise, contraction in industrial output slowed to 0.4% YoY from 8.1%.

The Purchasing Managers Index in Singapore was observed to show signs of stabilisation after falling amidst slowing global demand and trade war. Non-oil domestic exports to China spiked up, but its sustainability is deemed uncertain.

In response to weakening growth, Singapore is likely to pursue a highly expansionary fiscal policy by early next year, according to Irvin Seah, economist at DBS. “An outsized accumulated surplus of about $15.6b implies ample room for aggressive fiscal support for the economy,” he said.

Seah also expects the Monetary Authority of Singapore to slightly decrease the annual appreciation pace of SGD NEER policy band to 0.5% from 1% at its policy review in October.