After Germany, Singapore's economy is warned of "high risk" of falling into recession

Some economic experts say that Singapore's economy is at "high risk" of falling into a technical recession in the second quarter of 2023 due to challenges from the external environment.

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Singapore's economy is warned of a 'high risk' of falling into recession. (Source: VNA)

The Ministry of Trade and Industry (MTI) released official data showing that Singapore's economy shrank 0.4% in the last quarter compared to the final quarter of last year.

This reversed from 0.1% growth in the fourth quarter of 2022, putting the economy at risk of a technical recession, defined as two consecutive quarters of decline.

Singapore last fell into a technical recession in the second quarter of 2020, when the Covid-19 pandemic caused a global slowdown. Domestically, the implementation of a lockdown halted almost all economic activity for two months.

Singapore's economy remained in positive territory with a 0.4% growth rate compared to the first quarter of 2022, but much lower than the 2.1% growth rate in the fourth quarter of 2022. Officials kept their forecast for gross domestic product (GDP) growth in the range of 0.5% to 2.5%.

Singapore’s small, open economy is heavily dependent on trade, but external demand has weakened amid a slowing global economy, persistently strong inflationary pressures and a downturn in the global semiconductor industry. Singapore’s major non-oil domestic exports (NODX) have suffered a seven-month decline. Authorities also lowered their NODX forecast for 2023 after a “worse than expected” performance in the first quarter of 2023.

“While this is not our base case, there is still a high risk that the economy will fall into a technical recession, either in Q2 or the second half of the year,” said Shivaan Tandon from Capital Economics.

Maybank economists Chua Hak Bin and Lee Ju Ye expect the economy to stagnate, rather than recover, in the coming quarters. They added that Singapore could fall into a technical recession “if the expectations from China’s reopening fail to materialize in Q2.”

On tourism , experts note that the return of Chinese tourists is “trickle-down”. Meanwhile, exports have yet to feel a boost, with NODX shipments to the country falling sharply in April. This reflects the constraints on China’s import demand since reopening after the pandemic.

However, some economists are more optimistic. DBS economist Chua Han Teng is not worried about a technical recession and predicts a turnaround in the economy in the second half of 2023 to bring full-year growth to 2.2%.

“We acknowledge there are downside risks, the key factors to watch are the pace of China’s recovery and the turnaround in the electronics cycle,” said Mr Chua Han Teng.

On the policy makers’ side, MTI chief economist Yong Yik Wei said quarterly growth is expected to be “quite flat or very low” in the first half of the year and will gradually pick up towards the end of the year.

She also said that in the event of a technical recession, it would be largely related to the manufacturing sector, while sectors directly related to consumers and aviation would continue to be resilient.

On May 25, data from the German Statistical Office (Destatis) showed that the German economy contracted slightly in the first quarter of 2023 compared to the previous three months, putting Europe's largest economy into recession. GDP fell 0.3% in the first quarter of this year, adjusted for price and calendar effects. This came after the German economy contracted 0.5% in the fourth quarter of 2022.

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