Look out for GDP downgrade, but don’t fret over the ‘R’ word

A STATISTICAL update, tucked away in a footnote, has thrown Singapore’s 2022 economic scorecard into doubt.

Factory output data from January to May was revised downwards “due to updated information about a firm-specific factor”, the Singapore Economic Development Board said on Jul 26 in an annexe to a monthly report.

The revision originated in the semiconductor segment, but was a lead weight on the entire manufacturing sector. May’s industrial production growth was revised from 13.8 per cent to 10.4 per cent, for example, while January’s growth fell from 2.3 per cent to a piddling 0.6 per cent.

The revision covered a full 5 months and called into question not just advance gross domestic product (GDP) estimates for the second quarter, but those for January to March as well.

The downgrades were likely a shock for economy watchers, who typically expect Singapore’s conservative statistical wonks to upgrade – not cut – preliminary GDP data.

Singapore’s year-on-year GDP growth of 4.0 per cent in the first quarter and 4.8 per cent in Q2 could be lowered by about half a percentage point in August, analysts suggested.

In a worst-case scenario, quarter-on-quarter growth would skirt close to negative for both quarters. That would fulfil the conditions needed to declare a technical recession – reversing some of the hope that Singapore had left the Covid-19 economic downturn behind.

And yet, the experience of the last 6 months does not retroactively become any more difficult or dire because of data that was updated in July.

Singapore is not the only economy debating whether recession has already arrived.

United States leaders and policymakers continue to strenuously deny that the r-word is upon the country – even as data on Jul 28 showed its Q2 GDP shrank 0.9 per cent, extending the decline of 1.6 per cent reported in the 3 months prior.

Analysts who cover the US said private spending has remained strong despite rising inflation. Citi analysts Veronica Clark and Andrew Hollenhorst also observed in a report on Jul 26: “It is important to note that quarterly GDP figures are still much more volatile than usual and continue to reflect impacts from factors like virus-related disruptions and supply issues.”

US growth figures have also been dragged down by imports – which, “while negative for growth, were a sign of still-strong domestic demand”, Clark and Hollenhorst wrote.

Even when the cold hard numbers are certain, interpretations and implications may be less so.

Pertinently, China recently posted Q2 GDP growth of just 0.4 per cent year on year, with a quarterly contraction of 2.6 per cent, reflecting the economic toll of strict Covid-19 lockdowns that shuttered key economic hubs like Shanghai and Shenzhen.

The disappointing economic showing in the world’s second-largest economy revived the old adage about China sneezing and the rest of the world catching a cold.

But the case can be made that the problems behind the Chinese slowdown – such as weak consumer sentiment and rising youth joblessness – are none of the rest of Asia’s business.

China’s factory sector remains key to growth. Despite contracting by 0.3 per cent in Q2, manufacturing was still up by 2.8 per cent on a half-yearly basis, outpacing industries such as wholesale and retail trade, transport and storage, and accommodation and restaurants.

That’s good news for the rest of the region – including Singapore, which counts China as its top trading partner. Non-oil domestic exports (NODX) to China grew by 4.8 per cent year on year in June, improving from the decline of 10.6 per cent during lockdowns in April.

As long as China’s manufacturing and trade continue to support the global economy, a domestic-driven retreat in GDP figures can be seen as noisy, not noisome. And despite Covid-19 disruptions in China, it’s worth noting that Barclays still expects retail sales to grow by 3.5 per cent to 4 per cent in the second half of 2022.

Indeed, Singapore’s official forecast has been for full-year NODX growth of between 3.0 per cent and 5.0 per cent overall, and the latest figures still sit squarely in that range.

Seen in this light, the economic situation here – though not ideal – looks more reassuring.

Not only was the Q2 resident unemployment rate of 2.9 per cent lower than the pre-pandemic average, but resident employment has more than recovered to 4 per cent above pre-pandemic levels. Job growth is a clear sign that businesses are expanding to meet rising end-demand.

On the services front, retail sales are still growing, and should continue to do so on a strong recovery in international visitor arrivals to Singapore – which is taking place even without significant outbound travel from the major source markets of China and Japan.

There’s no denying that risks abound, as unforeseen events like infectious disease outbreaks and the raging war in Ukraine destabilise lives and livelihoods. International Monetary Fund chief economist Pierre-Olivier Gourinchas warned on Jul 26 that “the world may soon be teetering on the edge of a global recession, only 2 years after the last one”.

But turning to backward-looking blips to guide the future may not be helpful, either – as the US Federal Reserve’s tail-chasing bids to quell inflation through a spiral of rate hikes has shown.

In some ways, GDP growth, like age, is just a number. Policymakers’ attitudes are what really count.