Economists downgrade Singapore’s 2023 growth forecast, warn of technical recession

PRIVATE-SECTOR economists have downgraded their 2023 forecast for Singapore’s economic growth, with a worse-than-expected first-quarter gross domestic product (GDP) figure also prompting some to warn of a technical recession.

Singapore’s economy grew 0.1 per cent year on year in Q1, advance estimates from the Ministry of Trade and Industry (MTI) on Friday (Apr 14) showed, slower than the 2.1 per cent expansion recorded in the fourth quarter of last year.

On a seasonally adjusted quarter-on-quarter basis, the economy contracted by 0.7 per cent, reversing from the 0.1 per cent increase the quarter before.

Both figures came as a surprise to private sector economists, who had expected 0.6 per cent year-on-year growth, and a 0.1 per cent sequential contraction, a Bloomberg poll indicated.

The softer-than-expected Q1 print has led some economists to downgrade their full-year growth forecasts, and others to warn of a technical recession – defined as two consecutive quarters of quarter-on-quarter contraction.

“We think there is a substantial risk that Singapore may enter into a technical recession in H1 2023, and we also see a risk that revisions to Q1 GDP could subsequently show that Singapore’s economy actually contracted on a year-on-year basis in the first quarter,” warned UOB analysts Alvin Liew and Peter Chia.

Singapore risks slipping into a technical recession if the boost from China’s reopening fails to materialise in the second quarter, said Maybank economists Chua Hak Bin and Lee Ju Ye.

They noted that China’s reopening has yet to provide a significant boost to Singapore’s exports, with non-oil domestic exports to China continuing to tumble in the first two months of the year.

The Maybank economists were among the analysts who slashed their full-year forecasts, and now expect Singapore’s economy to grow 0.8 per cent in 2023, from 1.7 per cent. They also forsee that MTI will downgrade its official forecast range to between -0.5 and 1.5 per cent, from between 0.5 and 2.5 per cent, during the release of the final Q1 figures.

OCBC chief economist Selena Ling also downgraded her full-year outlook to 1.5 per cent, from 1.8 per cent, to factor in the weaker-than-expected Q1 growth estimate.

In addition to the uncertain external economic environment, the domestic economy is also starting to see pockets of weakness emerging — in wholesale trade, due to declining merchandise trade, as well as finance and insurance, noted Ling.

In Q1, the services sector grew by 1.8 per cent, against 4 per cent in the previous quarter. Within the sector, however, the wholesale and retail trade cluster declined, shrinking 1.1 per cent year on year, reversing from the 2.4 per cent growth the quarter before.

The information and communications, finance and insurance and professional services cluster moderated to a growth of 1.9 per cent in Q1, against a 2.5 per cent expansion in Q4.

Meanwhile, the accommodation and food services, real estate, administrative and support services, as well as other services cluster expanded 6.7 per cent, against 9 per cent in the previous quarter.

“There is a risk if the domestic labour market softens further in the coming quarters amid the growing global headwinds, this could start to weigh on consumer confidence and potentially prompt some belt-tightening which could impact private consumption,” warned Ling.

RHB senior economist Barnabas Gan similarly slashed his full-year growth forecast to 2 per cent, from 3 per cent, but remained optimistic that Singapore’s GDP growth momentum will improve in the second half of the year.

The majority of global central banks are nearing the end of their hiking cycles, with markets likely pricing in some rate cuts by the US Federal Reserve in 2024, said Gan, adding that the pace and intensity of China’s reopening efforts will also likely become clearer in the second half of the year.

Despite seeing a higher risk of a technical recession, UOB’s Liew and Chia kept to their full-year growth outlook of 0.7 per cent, which was already at the lower end of the official forecast.

Also sticking to their forecasts are DBS at 2.2 per cent; Barclays at 1.8 per cent; Standard Chartered at 1.3 per cent; and JP Morgan at 1.3 per cent.

Q1’s growth was largely dragged down by manufacturing, which contracted 6 per cent year on year, on shrinking output across all but the transport engineering cluster. It also worsened from the 2.6 per cent contraction in the quarter prior.

This “effective manufacturing recession” is more worrying than the soft Q1 growth figures, which “understates the far more dire state of manufacturing”, said Vishnu Varathan, head of economics and strategy for Asia and Oceania at Mizuho Bank. “The manufacturing recession not only squares with the dismal state of exports, but crucially reflects the dire state of the semiconductor industry,” he added.

In contrast, construction grew 8.5 per cent, extending the 10 per cent growth in the previous quarter, on a pick-up in both public and private-sector construction activities.

The healthy growth momentum in construction is expected to continue, given that the sector has a resilient pipeline of projects in 2023, noted DBS analysts Irvin Seah, Chua Han Teng and Philip Wee in a research note.