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Singapore Economic Growth To Drop To 0.9% By Year-End

This comes after GDP growth shrank 3.4 percent quarter-on-quarter but increased by a measly 0.1 percent in the second quarter, after registering a 1.1 percent growth in the first quarter.

The manufacturing sector continued to slow, contracting 3.8 percent following a 0.4 percent decline in the previous quarter. The construction sector and the services sector, on the other hand, expanded 2.2 percent and 1.2 percent respectively.

“[T]he risk of a technical recession is increasing and could materialise if our expectations for a modest recovery in H219 does not play out,” said Fitch Solutions in a report. Technical recession occurs when economic growth contracted for two straight quarters on a quarter-on-quarter basis.

With the increasing downside risks, the government will likely step in to provide fiscal support on top of handouts unveiled during the budget address in February.

“For now, handouts to Singapore citizens have yet to be fully delivered and, when delivered, we could see a rebound in domestic demand in the second part of the year, albeit at a sluggish pace.” noted Fitch Solutions.

Several megaprojects that are set to commence in the second part of 2019 are expected to support the resilient construction sector, it added.

Moreover, the Monetary Authority of Singapore (MAS) may be compelled to ease monetary policy by flatting the Singapore dollar’s nominal effective exchange rate (S$NEER) slope to a zero degree of appreciation at its October bi-annual meeting.

“While we have held the view since the beginning of the year that MAS would stand pat in 2019, after increasing the slope of the S$NEER twice in 2019, the slowdown in Singapore’s external and manufacturing sectors poses substantial risks to our view, and we will probably revise it over the coming weeks,” said Fitch Solutions.

“Such a revision would imply a weaker Singapore dollar, which would help to support the external sector.”

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