Singapore faces ‘high risk’ of technical recession amid external uncertainties, say economists

Singapore faces 'high risk' of technical recession amid external uncertainties, say economists

SINGAPORE: Singapore faces a “high risk” of slipping into a technical recession in the second quarter as challenges in the external environment persist, some private-sector economists said on Thursday (May 25).

These comments came after official data for the first quarter showed the economy declined 0.4 per cent from the previous three-month period on a quarter-on-quarter seasonally adjusted basis.

This marks a reversal from the 0.1 per cent growth in the fourth quarter of 2022, leaving the economy at risk of a technical recession which is defined as two consecutive quarter-on-quarter contractions.

The last time Singapore entered a technical recession was in the second quarter of 2020 when the COVID-19 pandemic cooled global growth. Domestically, the roll-out of the “circuit breaker” halted almost all economic activities for two months.

On a year-on-year basis, the economy remains in positive territory with growth of 0.4 per cent year-on-year between January and March, albeit much lower than the 2.1 per cent growth seen in the previous quarter.

Authorities have maintained their forecast for gross domestic product growth to range between 0.5 and 2.5 per cent, with the actual expansion likely to “come in at around the mid-point” of this range.

Singapore’s small and open economy relies heavily on trade, but external demand has been weakening amid a slowdown in the global economy, still-strong inflationary pressures and a downturn in the global semiconductor industry.

The country’s key non-oil domestic exports (NODX) have since chalked up a seven-month losing streak. Authorities on Thursday also downgraded the 2023 forecasts for NODX following a “worse-than-expected” performance in the first quarter.

“Although it is not our base case scenario, there remains a high risk that the economy slips into a technical recession, either in (the second quarter) or in the second half of the year,” Mr Shivaan Tandon from Capital Economics told CNA.

“While advanced economies have held up better than initially expected, we expect that resilience to fade in the second half of the year which will weigh heavily on demand for Singapore’s exports,” he added.

“This dynamic raises the risk of a technical recession given the export-driven nature of Singapore’s economy.”