Economists split over risk of technical recession, after revised Singapore Q1 growth beats market expectations

[SINGAPORE] Private-sector economists remain split over the risk of Singapore entering a technical recession, with some raising their full-year forecasts after Q1 growth came in better than expected.

Singapore’s gross domestic product grew 3.9 per cent year on year in Q1, revised up marginally from the advance estimate of 3.8 per cent, Ministry of Trade and Industry (MTI) figures indicated on Thursday (May 22).

Though it was a slowdown from the previous quarter’s 5 per cent growth, it surpassed economists’ expectations of 3.6 per cent.

MTI maintained its forecast range of 0 to 2 per cent. Most economists also kept theirs, but two banks – Maybank and UOB – upgraded their forecasts.

On a quarter-on-quarter seasonally adjusted basis, the economy shrank 0.6 per cent, reversing from Q4’s 0.5 per cent growth.

Though less than the 0.8 per cent contraction in the advance figures, this still paves the way for a technical recession, which MTI permanent secretary Dr Beh Swan Gin acknowledged as “a possibility” at Thursday’s briefing.

Staying cautious

In maintaining its forecast, MTI said Singapore’s external demand outlook for the rest of the year has “improved slightly” with a de-escalation of US-China trade tariffs – but the global outlook remains clouded by uncertainty, with risks tilted to the downside.

Dr Beh said: “Given the heightened uncertainty, MTI will continue to monitor developments closely, and make adjustments to the forecast as necessary in the coming quarters.”

Most economists similarly remained cautious amid uncertainty.

RHB analysts Barnabas Gan and Laalitha Raveenthar maintained their 2025 growth forecast at 2 per cent. For them, ongoing US-China trade talks limit the downside risk of growth being in the lower 0.5 to 1 per cent range.

Still, they warned: “Although recent advances in US-China negotiations provide encouraging signals of easing tensions, we urge continued vigilance and caution against premature optimism.”

They expect Singapore to enter a technical recession in Q2 with a contraction of 2.4 per cent on a quarter-on-quarter seasonally adjusted basis.

OCBC chief economist Selena Ling similarly kept her growth forecast at 1.6 per cent and expects a technical recession in Q2 on a quarterly contraction of 0.3 per cent, with year on year growth slowing further to 2.5 per cent.

Despite positive developments such as the 90-day pause on reciprocal tariffs, an initial US-UK trade deal and the 90-day US-China tariff truce, “some damage to business and consumer confidence has already been done”, she said.

DBS senior economist Chua Han Teng maintained his 2 per cent forecast for full-year growth, but sees a chance of avoiding a technical recession.

With exports being front-loaded during the 90-day reciprocal tariff pause, the boost to Singapore’s trade-related sectors “could be sufficient” to avoid a technical recession in Q2, he said.

However, such front-loading “will eventually be followed by a payback through decelerating trade and production” in the second half of the year.

Optimistic for now

MTI noted that Q1 growth was largely driven by Singapore’s wholesale trade, manufacturing as well as finance and insurance sectors – with the first two likely to have been partly supported by front-loading.

Exporters could continue to adopt front-loading as a hedging strategy, allowing for “bouts of resilience” in Singapore’s growth momentum, said UOB associate economist Jester Koh.

He raised his full-year forecast to 1.7 per cent, from 1.5 per cent before.

But in turn, he lowered his 2026 growth forecast to 1.4 per cent, from 1.6 per cent before. This is as payback effects could result in an “even more protracted downturn in trade and manufacturing activity” late in the second half of 2025, and into the first half of 2026.

Maybank economists Chua Hak Bin and Brian Lee upgraded their full-year forecast to 2.4 per cent – above MTI’s forecast range – from 2.1 per cent previously.

They expect a growth slowdown in the second half, as opposed to a recession or sharp downturn.

This is as front-loading continues into Q3, while the tariff shocks are also cushioned by a construction boom, falling interest rates and fiscal support. Safe-haven flows will also support Singapore’s financial and real estate activities.

Sectoral outlook

For the rest of the year, MTI expects the growth of outward-oriented sectors to slow, particularly as US tariff measures hurt manufacturing.

The manufacturing slowdown, alongside weaker global trade, will weigh on trade-related services sectors such as wholesale trade; transportation and storage; and finance and insurance.

Worsening business expectations will likely cause companies to cut back on discretionary spending, dampening the growth of the information and communications as well as professional services sectors.

Finally, growth in consumer-facing sectors such as retail trade as well as food and beverage services is likely to remain lacklustre, as locals continue to spend abroad and domestic labour market conditions weaken.

This follows a Q1 in which the outward-oriented sectors generally had year-on-year growth but quarterly contraction.

Manufacturing growth slowed to 4 per cent, from 7.4 per cent before. Growth was mainly driven by the electronics, precision engineering and transport engineering clusters.

But on a quarterly basis, the sector shrank 5.8 per cent, weakening from flat growth before.

Construction grew 5.5 per cent, up from 4.4 per cent before. But sequentially, it contracted 1.4 per cent, reversing Q4’s 0.3 per cent expansion.

The wholesale trade sector grew 4.2 per cent year on year, slowing from 6.7 per cent. But it shrank 0.4 per cent quarter on quarter, reversing from Q4’s 0.9 per cent growth.

For domestic-oriented services, retail trade grew by a marginal 0.1 per cent, accommodation shrank 0.9 per cent, and food and beverage services shrank 0.2 per cent.

In contrast, growth accelerated for several services sectors: to 5.2 per cent for transportation and storage; to 7.1 per cent for real estate; to 1.4 per cent for professional services; to 4.4 per cent for information and communications; and to 2.8 per cent for administrative and support services.

Other services industries grew 1.1 per cent, slowing from 3.1 per cent the previous quarter.