S’pore avoids technical recession; Q3 growth 1.4%

SINGAPORE — Singapore narrowly escaped a technical recession by a hair’s breadth in the third quarter with a marginal growth of 0.1 per cent on a quarter-on-quarter seasonally adjusted annualised basis. Despite the close shave, the outlook remains dicey and the economy — barring a turnaround in the next few months — could come in at the lower end of the official growth forecast this year, or even miss it completely, amid strong external headwinds and domestic restructuring.

Second-quarter gross domestic product had contracted a revised 2.5 per cent on a quarter-on-quarter seasonally adjusted annual rate (q-o-q saar) basis, and following dismal exports and industrial output figures over the last few months, many analysts were widely expecting Singapore to slip into a technical recession in the third quarter. A technical recession is generally defined as two consecutive quarter-on-quarter contractions in gross domestic product. Singapore last experienced a technical recession during the global financial crisis in 2008.

“We had expected a mild technical recession, and a 0.4 per q-o-q saar decline for the third quarter, led by the drag in manufacturing. This time around, the strength came from the services sector, which beat our forecast. The manufacturing sector too surprised us,” said Mr Francis Tan, Economist at OUB.

On a year-on-year basis, the economy expanded 1.4 per cent in the third quarter, after growing a revised 2 per cent in the preceding quarter, according to the advance estimates released by the Ministry of Trade and Industry (MTI) today (Oct 14). The street estimate was 1.3 per cent.

The saving grace in the third quarter came from the robust services sector, which was the only sector to grow on a sequential basis, at an annualised rate of 0.8 per cent versus 0.2 per cent in the second quarter. On an on-year basis, the sector grew 3 per cent, compared with 3.6 per cent in the previous quarter.

“Although (the service sector) did help the economy avert a technical recession, it didn’t quite pick up much slack from the manufacturing sector given its sluggish growth pace. A domestic manpower crunch and heightened risks in the global environment have weighed down the performance of the sector,” DBS senior economist Irvin Seah said.

The manufacturing sector is already in recession, having contracted in the past four quarters in year-on-year terms and in three out of the past five quarters on a sequential basis.

In the third quarter, manufacturing remained in reverse gear although it did improve on a sequential basis, shrinking at an annualised rate of 3.6 per cent following a 17.4 per cent contraction in the preceding quarter. On an on-year basis, the sector shrank further to 6 per cent, from 4.9 per cent in the second quarter, largely due to a fall in the output of the electronics, biomedical manufacturing and transport engineering clusters.

Meanwhile, the construction sector lost some steam as it declined 0.8 per cent q-o-q saar from a 12.4 per cent expansion in the previous quarter. On a year-on-year basis, it expanded 1.6 per cent versus 2 per cent in the April to June period.

The MAS said separately today that it expects the Singapore economy to expand at a modest, but “slightly weaker than earlier envisaged” pace this year and next. The central bank maintained its growth forecast of between 2 and 2.5 per cent this year, but cautioned that risks are tilted towards the downside.

Economists are, however, not entirely confident that Singapore will be able to comfortably meet that target, if at all.

“Despite the close shave (in the third quarter), the storyline hasn’t changed. The growth outlook remains dicey amid strong external headwinds and domestic restructuring is still a major challenge for companies,” said Mr Seah. “The global environment is becoming more challenging. Risks surrounding the US rate hike amid a sluggish recovery, a cloudy Eurozone outlook and the deceleration in China will continue to weigh down on growth outlook,” he added. Mr Seah expects full-year growth to come in at 1.8 per cent.

UOB’s Mr Tan is wagering that services will help boost GDP again in the final quarter of the year, helping providing an anchor to growth. Still, he has downgraded his full-year forecast from 2.5 per cent to 2 per cent, citing weak global demand.

“At 2 per cent, this would mark Singapore’s slowest full-year growth performance since the 2008 financial crisis,” he added.

At OCBC, head of treasury research and strategy Selena Ling is also banking on a 2 per cent growth for the entire year following a 1.9 per cent on-year expansion in the fourth quarter.

“There is unlikely to be any quick turnaround recovery theme in the manufacturing or regional growth story in the near-term,” she said.