Singapore’s economy faces sharp slowdown into 2023, despite escaping recession so far

SINGAPORE’S economy is not expected to sink into decline just yet, with overall growth tipped to remain positive into 2023 despite a sluggish second quarter.

Still, gross domestic product (GDP) growth looks headed for a sharp slowdown, with watchers warning that the outlook for the year ahead is highly uncertain.

That’s as global recession risks – including in Singapore’s key trading partners – are expected to rise on global central banks’ aggressive containment of soaring consumer prices.

While Selena Ling, chief economist at OCBC, believes that “a recession is not on the cards for the Singapore economy at this juncture despite the external headwinds”, she noted that GDP could ease in 2023 “to around or even below the 3 per cent year-on-year handle”.

Singapore’s GDP expanded by 4.8 per cent year on year in the second quarter against a low year-ago base, according to flash estimates released by the Ministry of Trade and Industry (MTI) on Thursday (Jul 14).

But quarterly growth was flat on a seasonally adjusted basis, cooling from 0.9 per cent in the 3 months prior – and momentum is expected to keep slowing.

Maybank kept its GDP forecast for 2022 at 2.8 per cent, but cut the projection for 2023 to 1.5 per cent, from 2.5 per cent before, with year-on-year GDP growth possibly turning negative for 1 or 2 quarters next year.

Maybank senior economist Chua Hak Bin told The Business Times (BT): “The risk of a recession is much higher in 2023 if the US Federal Reserve is overzealous in fighting inflation with steep rate increases.

“Singapore will likely not decouple from, and remains vulnerable to, a sharp global downturn or synchronised recession in the US, European Union, United Kingdom, and Japan.”

The Monetary Authority of Singapore (MAS) – which tightened policy in a shock move after the GDP print – pointed to “risks of a more significant slowdown in Singapore’s key trading partners as monetary policy tightening in response to elevated inflation dampens consumption and investment demand” in its 2023 outlook.

Said the central bank in its decision statement: “In tandem with a weaker global economic environment, Singapore’s GDP growth is expected to moderate further in 2023.”

Granted, year-on-year growth is expected to stay positive, as private-sector analysts affirmed Minister of State for Trade and Industry Alvin Tan’s reassurance to Parliament in early July that “at this stage, we do not see or do not expect a recession or stagflation in 2023”.

Yet, the latest sequential stagnation raises the question of technical recession – that is, 2 quarters of quarter-on-quarter decline. Indeed, Chua flagged “some small risk of a technical recession in the second half” of 2022, although that is not Maybank’s base case at this juncture.

Similarly, Irvin Seah, senior economist at DBS, said “there is always a fair chance of negative quarter-on-quarter growth” when growth inches towards zero, as has just happened.

Still, he added: “We could actually see some uptick in terms of demand coming from China, so that will help to alleviate the risk of a technical recession in Singapore.”

Denise Cheok, economist at Moody’s Analytics, also does not expect a technical recession. “Singapore’s key manufacturing sector has remained resilient even with lockdowns in China and the geopolitical turmoil in Europe. With the semiconductor shortage expected to extend into 2023, electronics will continue shoring up exports in the second half of the year,” she told BT.

The latest advance GDP estimates are based mainly on data from April and May, with more comprehensive and updated figures scheduled to be published in August.

Second-quarter growth could still be upgraded on rosier June data – albeit only marginally, as Seah said manpower constraints would cap upside risk in the services and construction sectors.

Cheok also said: “The advance estimate has undershot both our and market expectations, so an upward revision might not necessarily lead to an increase in our current forecast for full-year 2022 growth or 2023 growth.”

The MTI most recently reiterated in May its projection for full-year GDP growth of 3 per cent to 5 per cent, though Maybank expects an official downgrade to between 3 per cent and 4 per cent.

To be sure, economy watchers have not written off the rest of 2022 just yet.

Barclays cut its forecast from 4.9 per cent to 4.3 per cent, still above consensus. Meanwhile, Nomura’s estimate of 4.4 per cent growth pencils in “substantial scope for a catch-up of laggard sectors such as travel and tourism” and implies a return of output levels to pre-pandemic trend.

Referring to the trend of annual growth of between 3.5 per cent and 4 per cent, Seah – who expects 3.5 per cent growth in 2022 – told BT: “We are normalising towards the kind of economic conditions or growth that we were used to before Covid.”

RHB senior economist Barnabas Gan, who has a similar forecast for 2022, also said in a report: “Second-quarter GDP in real terms is already 6.4 per cent above 2019’s average, underlining that Singapore’s economy has recovered considerably from the Covid-19 trough.”

But Ling warned that the outlook for next year “remains highly uncertain” – an adjective that notably recurred in multiple reports about the economic forecast for 2023.