World Economy

Singapore Near Technical Recession

Singapore Near Technical RecessionSingapore Near Technical Recession

Third-quarter gross domestic product on tap this week may unveil a foggy economic outlook for Singapore, mirroring the hazy skies that have shrouded the Southeast Asian island-state for the past month due to seasonal pollution from the burning of Indonesia’s forests and land.

Advance estimates for the July-September quarter, scheduled for release on Wednesday, are expected to show the economy growing 1.3% on-year, according to a Reuters poll.

However, on a quarter-on-quarter basis, the economy likely shrank 0.1% from the previous three months on an annualized and seasonally adjusted basis, the Reuters poll said, following a 4.6% contraction in the April-June quarter. This would put Singapore in a technical recession, which is commonly defined as two successive quarters in which the economy contracts from the previous quarter.

Singapore’s economy last went through a recession in 2008 when a slowdown in US and European consumer demand hit the country’s crucial manufacturing sector.

This time round, a confluence of factors such as erratic global demand led by a slower-growing China–a major market for Singapore–and domestic issues such as a tight labor market are among the culprits dampening the outlook of the affluent city-state.

Industrial output declined more than expected in July and August, while the all-items consumer price index fell for the 10th consecutive month in August to a post-global financial crisis low.

  Exports Decline

The all-important export sector is likely to stay in the doldrums. September non-oil domestic exports due on Friday, likely fell 3.6% on-year, said economists polled by Reuters, after an 8.4% slide in August and 0.7% slip in July.

“Exports and industrial output have slumped hard alongside port activity as a consequence of China wobbles exacerbating global demand deficiency. And while not as dire as externally-focused activity, domestic demand has also been dented by a confluence of softer credit growth, labor supply constraints and broader economic drag from the cooling property market,” Vishnu Varathan, senior economist at Mizuho Bank, wrote in a note released Monday.

“With Singapore mired in downturn derived from sustained and broad-based factors rather than quirks of GDP sub-component volatility, any technical recession is not merely fleeting technicality,” he added.

  Monetary Policy

Given the downside risks to growth and inflation, experts believe the Monetary Authority of Singapore will loosen monetary policy for the second time this year when it releases its semi-annual policy statement also on Wednesday.

According to a Reuters poll, 12 of 18 analysts expect the nation-state’s central bank to ease its exchange-rate based policy. Out of the remaining 6 analysts who predict the MAS to keep all policy settings on hold, two said the Singapore dollar’s policy band could be widened to accommodate higher volatility.

Rather than use interest rates, Singapore’s central bank manages its monetary policy by adjusting an undisclosed trading band based on a basket of currencies weighted to reflect trade levels with the city-state.