Singapore Stares At A Technical Recession Exacerbated By the US-China Trade War
Singapore might be starring recession following a stumble in its economic growth in the first half of the year. The city-state recently reported a decline in gross domestic product growth in the second quarter. The GDP shrunk 3.3% compared to the first quarter, and the figures are painting a grim picture for the country. On Tuesday, the Ministry of Trade and Industry said that GDP is likely to be between 0 and 1% this year. This comes barely months after the country trimmed full-year expectations from 3.5% to between 1.5% and 2.5%.
The country has reported its weakest annual growth since the 2009 recession when the economy contracted by 0.6%. GDP grew by 0.6% in the first half of the year, and this is expected to slow further in the second half and technically push the economy into recession. The economic downturn in Singapore is being driven by growing trade tensions between the US and China, slowing in the growth of the Chinese economy as well as uncertainty in Eurozone. All these geopolitical and economic factors have cast a shadow on a growingly softening global economy.
The causes of recession
The Singapore economy relies heavily on trade exports, especially to China, which is its biggest market. The Chinese economy is currently growing at a slow pace for over 27 years, and this has decreased consumer demand. The Chinese economy is expected to continue slowing down if the trade tariff war with the US doesn’t end soon. This means that Singapore will continue facing headwinds in exports as import demand declines in China, which will affect the region’s economic growth. The Chinese economy will continue softening in the second half of the year because of weakening investment growth and declining exports aggravated by the US trade tariffs.
The trade tension between the US and China does not seem to end anytime soon. The trade war will continue weighing on Singapore’s trade-related services and exports, leading to a technical recession. The tariffs are affecting Singapore, which heavily relies on trade and in the past few months it has witnessed a decline in exports. In May, shipments declined dropped for the first time in six years. This further aggravates the possibility of a technical recession which is expected to be even deeper.
Events such as the recent Hong Kong protests and the trade dispute between South Korea and Japan may also be contributing to recession. Equally, global uncertainties as a result of a softening global economy could further hurt consumer confidence and weaken businesses, which could lead to a cutback in investment and consumption.
Industries/Sectors most hit
The deepening economic downturn and macroeconomic backdrop will make the Singapore economy to continue facing headwinds in the second half of the year. The sectors that have been most hit in the first half of the year include manufacturing and wholesale and retail.
Trade has been hit most in the country, especially the wholesale and retail trade segments. The sector experienced a 3.2% YoY decline in growth, which was more than the 2.5% drop registered in Q1. The weak performance in the sector was spearheaded by the wholesale segment. The segment shrunk as a result of the decline in equipment & supplies and machinery sub-segment. The former was in line with the decline in the country’s non-oil domestic exports in the second quarter. The retail trade segment also shrunk because of a decline in both non-motor and motor vehicle retail sales. On an annualized bases, the segment contracted 7.9% quarter-over-quarter, which is a turnaround from the 3.1% growth posted in the first quarter.
Manufacturing also has been hit with a 3.1% YoY decline in the second quarter relative to the 0.3% the first quarter. This shows that an economic downturn is beginning to bite, especially with the slowing consumption of electronics. Precision engineering and transport engineering are the segments that have equally suffered in manufacturing. However, on an annualized basis, the sector has shrunk gradually with a 3.4% decline compared to the previous quarter’s 6.4%.
The Ministry of Trade and Industry has indicated that the company will continue feeling headwinds for the rest of 2019. The precision engineering and electronics segments will be affected most as the weakness in the first half are expected to continue. This will have a negative spillover impact on the wholesale segment as other related segments such as storage and transport also expected to suffer.
Singapore’s economic growth slowed in the first half of the year, and that trend is expected to continue in the second half. Just like most emerging economies, it suffered as a result of several factors like the softening global economy and the US-China trade war. Going forward to demand from major markets is expected to slow down, which will affect growth. In the second half, Singapore’s GDP growth is expected to moderate even as the effects of the 2018 fiscal stimulus dissipate the slow growth.
There are some strong indicators in the Singapore economy, even as recession hits. In the manufacturing sector, the food and beverage manufacturing, as well as aerospace segments, are expected to grow as a result of strong demand. Information and communication and finance and insurance sectors will continue to remain healthy bolstered by the sustained demand for IT solutions and payment processing services. The MTI permanent secretary has, however, indicated that the sectors that remain unaffected are not as large as manufacturing and trade.
It seems apparent that a recession will soon hit Singapore and the global economies soon judging from the economic softening that has been witnessed. All the factors pushing the economy into a recession are apparent, and it could be sooner if the US-China trade war doesn’t end soon. The conflict has .impacted on the electronics segment, which is already in a downturn, and it seems the dip will be prolonged. With business confidence already at new lows, it aggravates the downturn and will push the possibility of any recovery to late 2020.