Singapore downgrades GDP outlook, avoids recession

SINGAPORE  –Singapore slightly cut its economic outlook for 2023 on Friday after it narrowly averted a recession in the second quarter, with weak global demand a key drag on its trade-reliant economy.

Gross domestic product (GDP) expanded a seasonally-adjusted 0.1 percent quarter-on-quarter in April to June, slower than 0.3 percent growth seen in the government’s advance estimate. The first quarter contracted 0.4 percent.

Industrial output and exports have fallen for nine straight months, raising the risk of a prolonged downturn, but a trade ministry official told a press conference a technical recession – two consecutive quarters of contraction – was not expected this year.

On an annual basis, the economy expanded 0.5 percent, compared with the advance estimate of 0.7 percent and first quarter growth of 0.4 percent, the Ministry of Trade and Industry (MTI) said in a statement.

Manufacturing will remain weak, dampened by a protracted downturn in electronics, while finance and insurance sectors will likely be subdued, MTI said.

On the bright side, consumer-driven and tourism sectors, stand to benefit from the region’s post-pandemic recovery.

The ministry narrowed its GDP growth forecast to 0.5 percent to 1.5 percent this year from 0.5 percent to 2.5 percent previously. The economy grew 3.6 percent in 2022.

While the slowdown in manufacturing is proving to be “a little bit more protracted” than what the government initially thought, Singapore is expecting a modest recovery in the second half of the year, anchored by inbound tourism and resilience of consumer-facing sectors providing some cushion to growth, Yong Yik Wei, chief economist at MTI, said.

The Straits Times stock index was down 0.6 percent in morning trade, lagging other markets in Asia.

Policy stance appropriate

Inflation had remained elevated in the first half of this year and some easing was seen in June’s figures, in line with the authorities’ expectations that core prices should moderate further in the second half.

Growth and inflation trends were within expectations, a central bank official at the same event said on Friday, adding the Monetary Authority of Singapore‘s (MAS) policy stance was “appropriate”.

Analysts are expecting no change to monetary policy at MAS’s October meeting, despite cooling momentum.

“MAS will be reluctant to ease policy as price levels are still high, and also considering that another round of goods and services tax (GST) hike will be implemented next year,” said Barclays economist Brian Tan.

MAS left its policy settings unchanged in April, after tightening five times in a row since October 2021, reflecting concerns over the city-state’s growth outlook.