While the trading partner of Singapore (China) is struggling to get a boost after the COVID, as the economic outlook of the world weakens, the risk of a recession increases in the city-state as the economy of Singapore contracted in the first quarter.
The borrowing costs have hiked, and inflation pressure is immense on the market, which has affected Singapore, as the country is the major financial hub and mostly relies on trade for smooth economic flow. Due to the hike in prices, demand has faltered, which has affected the country.
On Thursday, the official data were released, and they showed that the gross domestic product increased by 0.4% in the first quarter of 2023, which is on a yearly basis. It broke the 0.1% advance estimate that was released last month.
The economy shrank by 0.4% on a seasonally adjusted basis, reversing the 0.1% gain in 2022’s fourth quarter. This puts the country at risk of a technical recession with a possible contraction in the current quarter.
After China’s reopening fails to materialize in the second quarter, it can lead to a “technical recession,” which is two consecutive quarters of contractions, Maybank economist Chua Hak Bin said. He added, “The return of China tourists is more a trickle than a flood so far.”
The outlook for external demand for the rest of the year has dimmed, as acknowledged by the trade ministry, which also said that it doesn’t expect any technical recession this year.
According to the chief economist at the trade ministry, Yong Yik Wei, what the government expects is low quarterly growth in the first half of the year, which will gain momentum after the first half of the year.
“But obviously, you know, given the downside risks and the weakening outlook, we cannot rule out the possibility that there could be some quarters of negative q-on-q growth this year.”
The central bank stated that its current monetary policy is acceptable and that it has its eye on both growth and inflation trends. The monetary policy was unchanged last month by the Monetary Authority of Singapore, as it was tightened five times in a row from October 2021, which included the two-off cycle moves in January and July last year.
The growth forecast is maintained at 0.5% to 2.5% this year by the trade ministry; growth is expected around the midpoint of the range. Watching the growth forecast steady, Maybank’s Chua said he was surprised.
“We are less optimistic and see the economy stagnating rather than rebounding in the coming quarters.”
