The Singapore economy grew 0.1 per cent on a year-on-year basis in the third quarter, advance estimates from the Ministry of Trade and Industry (MTI) showed on Monday (Oct 14).
This is below the 0.3 per cent growth expected by economists in a Reuters poll, and at the same pace with the 0.1 per cent growth in the previous quarter, which was the lowest in a decade.
On a quarter-on-quarter seasonally adjusted annualised basis, gross domestic product (GDP) expanded 0.6 per cent, recovering from the previous quarter’s 2.7 per cent drop.
This means that Singapore has avoided a technical recession, defined as two consecutive quarters of quarter-on-quarter economic contraction.
According to the data, the manufacturing sector contracted by 3.5 per cent on a year-on-year basis in the third quarter, extending the 3.3 per cent decline in the previous quarter.
“The contraction was due to output declines in the electronics, precision engineering and transport engineering clusters, which more than offset output expansions in the chemicals, biomedical manufacturing and general manufacturing clusters,” said MTI.
On the other hand, the construction sector grew by 2.7 per cent on a year-on-year basis in the third quarter, extending the 2.8 per cent expansion in the previous quarter.
The services producing industries also expanded by 0.9 per cent year-on-year in the third quarter, following the 1.1 per cent growth in the previous quarter.
“Growth during the quarter was primarily supported by the finance and insurance sector, the other services industries and the business services sector,” said MTI.
MTI will release the preliminary GDP estimates for the third quarter, including performance by sectors, sources of growth, inflation, employment and productivity, in its Economic Survey of Singapore in November.
In a separate announcement on Monday morning, the Monetary Authority of Singapore said it is reducing the pace of the Singapore dollar’s appreciation “slightly”, in line with market expectations amid a slowing in the Singapore economy.
Mr Alex Holmes from research firm Capital Economics said: “Looking ahead, we expect the economy to remain very weak.
“While fiscal and monetary loosening should help, external headwinds from the US-China trade war and slowing global growth are likely to weigh heavily on growth prospects,” he added.
Mr Holmes expects the Singapore economy to grow just 0.5 per cent this year and 1.5 per cent in 2020.
Also expecting growth for the full year to come in at around 0.5 per cent, Mizuho’s Head of Economics and Strategy Vishnu Varathan noted that the economy is far from being out of the woods.
The key manufacturing sector, for instance, has logged its fourth straight quarter of quarter-on-quarter contraction.
“Worryingly, this is not a garden-variety cyclical exports or manufacturing downturn, typically easier to get over. Instead, the downturn is complicated by an earlier semiconductor down-cycle colliding with the US-China trade conflict,” he wrote in a note.
“What’s more, not only is a recovery or bottoming compromised by negative shocks from US-China trade conflict, but a spillover tech war waged on China risks a double dip in electronics.”
With a US-China trade deal “far from a given”, Mr Varathan said the Singapore economy is “left on a knife’s edge”.
Core inflation, a key MAS indicator that strips out private road transport and accommodation expenses, is set to remain low as weaker growth helps keep a lid on underlying price pressures, said Mr Holmes.
“As such, we think the MAS will leave policy settings loose for an extended period of time,” he added.
“The Singapore dollar has space to weaken within the policy band and we expect it to depreciate to around 1.43 to the US dollar by end-2020 from 1.37 at present.”