Trade War Spurs Recession Risk in Singapore

The Tanjong Pagar container terminal in Singapore.
  • Shock contraction in quarterly GDP raises risk of job losses
  • Officials already grappling with aging, productivity threats

Singapore’s economic data have gone from bad to worse this month. Exports slumped to their second-worst rate since the global financial crisis, the purchasing managers index slipped into contraction for the first time since 2016, and the economy shrank the most in almost seven years in the second quarter.

Exports, manufacturing PMIs sink to multi-year lows


After spending much of early 2019 enjoying relative resilience, a recession 
is now looming. That’s a warning shot for regional and global economies, since Singapore’s heavy reliance on trade makes it somewhat of a bellwether for the rest of Asia.

The severity of the slump may be down to trade tensions and a global slowdown, but Singapore has been grappling with longstanding economic threats that have been slowly eroding the city state’s growth potential: rapid aging, labor market shrinkage, and sluggish productivity among them. Those risks will become more acute for policy makers now.

“Any undue turbulence or prolonged stresses from the trade war are only
going to compound the challenges of all the other issues — productivity, demographics, anything else,” said Vishnu Varathan, head of economics & strategy at Mizuho Bank Ltd. in Singapore. “External demand concerns will be at the top of the list for now, because if you don’t get that one right it’s that much more difficult to solve everything else.”

Singapore remains one of the most export-reliant economies in the world, with trade equivalent to 326% of gross domestic product, according to World Bank data. That puts the city state at the center of the storm stirred up by its top two trading partners sparring
over tariffs.

The shock GDP figures earlier this month prompted some analysts to downgrade
their Singapore forecasts for the year to below 1%. The government is set to revisit its own 1.5%-2.5% range next month, but for now, it’s remaining calm, seeing no recession for the full year.

What Bloomberg’s Economists Say…

“Barring a swift rapprochement in U.S.-China trade relations, our forecast for a 0.2% year-on-year contraction in Singapore in 2019 remains on course.

The government has ample firepower to cushion the blow, but it may not be enough to avoid a recession.”

-Tamara Henderson, Asean economist

The slump is largely contained so far to manufacturing, which makes up about a fifth
of the economy, but could soon spread to other sectors such as retail and financial services. That increases the risk of job losses at a time when businesses like International Business Machines Corp. are already laying off workers and banks such as Nomura Holdings Inc. cut staff.

The number of retrenched  workers in Singapore rose to the highest in more than a year in the first quarter, though the unemployment rate has remained fairly steady at 2.2% amid a recovery in construction.

“The labor market looks to be on two tracks at the moment — there’s a weak market in the manufacturing sector but a steady one in the services sector,” said Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings in Singapore. “High-frequency indicators including industrial production and trade suggest that the environment will remain challenging in manufacturing for the year.”

While those cyclical headwinds buffer the outlook, policy makers are also grappling with structural impediments to growth.

An employee clears tables at a food center in Singapore.

Faced with a rapidly aging population, the government has been on an aggressive campaign to re-skill its labor force and prepare workers for a postponed retirement.
The median age is set to rise to 46.8 years in 2030 from 39.7 in 2015, faster than the other top economies in Southeast Asia as well as the world as a whole, according to United Nations projections.

Tied to its rapid aging is Singapore’s productivity conundrum.

As the labor pool shrinks and gets older, the city state’s answer to the productivity challenge has been to automate and digitize. With an ambition to become a “Smart Nation,”  the government has poured money and energy into digitization projects
of all kinds, from helping seniors fine-tune smartphone skills at digital clinics to attracting financial technology giants to set up shop and test their ideas.

Silver-Medal Race

It’s that technological advancement, along with its world-beating infrastructure and efficiency, that continues to make Singapore attractive to businesses like Dyson Ltd., the U.K. manufacturer that picked the city state for its location to build its first electric cars. It’s also a reason why officials are confident Singapore can meet its foreign investment targets for this year.

“They’re saying the right thing, doing the right thing,” said Edward Lee, chief economist for South and Southeast Asia at Standard Chartered Plc in Singapore, who has penciled in 1% growth for 2019. “Retraining, ongoing structural reforms on the labor side — those are the right things.”


— With assistance by Cynthia Li

S’pore escaping recession?

Govt reiterates 1%-3% GDP forecast for 2012 after smaller contraction

SINGAPORE: Singapore says it may avoid a recession despite the weak global economic outlook, after data showed the economy contracted less than expected in the last quarter of 2011 despite persistent weakness in electronics.

“The first month of trade numbers, export numbers are quite good,” Thia Jang Ping, a director at the Ministry of Trade and Industry, told a news conference.

“It’s still too early to call, but our near-term indicators do not suggest an imminent danger of Singapore slipping very badly into a recession in the first quarter,” he added.

The economy shrank 2.5% in the fourth quarter from the preceding period on an annualised and seasonally adjusted basis, data showed yesterday.

Slowdown: Singapore’s port is seen through the downtown business district. The island nation says its trade and non-oil domestic exports are expected to grow by 3% to 5% this year, down from a rise of 8% and 2.2%, respectively, in 2011. — AP

The GDP data was better than an advance flash estimate of a 2.9% contraction, but worse than the median estimate for a 2.3 % decline by economists polled by Reuters.

From a year earlier, gross domestic product grew 3.6%. Singapore stocks and currency weakened yesterday although that was in line with the regional trend, with sentiment hit by a another delay in cementing a bailout package for Greece.

Singapore expects its economy to grow by 1% to 3% in 2012, down from last year’s revised expansion of 4.9%, although it warned of risks to the forecast.

Asia is suffering the effects of slowing demand in the West, and the International Monetary Fund (IMF) last month warned that Europe’s debt crisis could tip the world economy into recession.

A recession is often defined as two consecutive quarters of contraction, and Singapore, whose trade is three times GDP, tends to feel the chills from a deterioration in global economic conditions faster than most countries.

“Specifically, a disorderly sovereign default in the eurozone could precipitate a global financial crisis, while an escalation of geopolitical tension in the Middle East could trigger a global oil price shock,” Singapore’s trade ministry said in a statement.

On Wednesday, South Korea said January exports fell 7% from a year ago in the biggest annual decline since October 2009, while Australia said its leading index of employment dropped in February in a sign that jobs growth could fall.

Singapore also said yesterday its trade and non-oil domestic exports were expected to grow by 3% to 5 % this year, down from a rise of 8% and 2.2%, respectively, in 2011. – Reuters

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