SINGAPORE, July 13 — The government is “not expecting a full-year recession at this point”, Deputy Prime Minister Heng Swee Keat said yesterday, but economists are warning that there is a high likelihood of a technical recession ahead.
Heng, who is also Finance Minister, was responding to the latest advance economic growth estimates put out by the Ministry of Trade and Industry (MTI) the same day, which showed the Singapore economy recording a disappointing 0.1 per cent year-on-year growth in the second quarter.
In a Facebook post, Heng said that despite heightened uncertainties and global economic risks tied to the US-China trade tensions, “there remains areas of strength in our economy”, referring to the information and communications (infocomms) and construction sectors.
“We are prepared for the cycles the economy will go through. The government is monitoring the situation closely, and is working with employers and unions to prepare for all scenarios.”
On Facebook, several other ministers also chimed in on the state of the economy as well as the strategy for Singapore.
Trade and Industry Minister Chan Chun Sing said that segments such as electronics, precision engineering and wholesale trade have weakened and “will need to adjust”, while service-oriented sectors such as infocomms and education, health and social services continue to hold up well.
Why the Q2 slump
On a quarterly basis, all three major industries showed a decline. Manufacturing fell 6 per cent from the first quarter; construction dropped by 7.6 per cent; and services contracted by 1.5 per cent.
On a yearly basis, manufacturing shrank by 3.8 per cent in the second quarter, extending the 0.4 per cent contraction in the previous quarter.
The slump was due to output declines in the electronics and precision engineering clusters, which more than offset output expansions in the rest of the manufacturing clusters, MTI said in a statement.
Construction grew 2.2 per cent year on year in the second quarter, slower than the 2.7 per cent growth in the first quarter.
This was driven by public sector activities, though the overall boost to the economy in 2019 may not be significant if the take-up of private property launches is weak, Maybank Kim Eng economists, Dr Chua Hak Bin and Lee Ju Ye, said.
Services remained unchanged from the previous quarter on a year-on-year basis, coming in at 1.2 per cent growth. This was mainly in sectors such as finance and insurance, infocomms and other services, MTI said.
Wta analysts say
Economists said that Singapore’s economic prospects have clearly deteriorated due to downside risks such as the trade war, as well as the slowdown in China and global growth, and the worsening tech cycle downturn.
Nearly all analysts interviewed by TODAY said chances are high that there could be a technical recession, which is defined by two consecutive quarter-on-quarter declines.
Referring to the latest result as “a near stall”, OCBC bank’s head of treasury research and strategy Selena Ling noted that the first half of this year’s Gross Domestic Product (GDP) year-on-year growth was at a “paltry” 0.6 per cent, the weakest first half growth since 2009.
It “clearly heightens the risk of a technical recession if growth momentum remains tepid going into the third quarter,” she said.
Joseph Incalcaterra, HSBC Global Research’s chief economist for the Association of South-east Asian Nations, said that the weakness in Singapore’s GDP is “a harbinger of further growth deterioration across the region”.
He added: “What surprised us is how broad-based the deterioration was in Singapore, suggesting that unlike other neighbouring economies, domestic-facing sectors are not strong enough to offset external headwinds.”
Dr Chua and Lee from Maybank Kim Eng, who had previously forecasted a “shallow” technical recession, have downgraded their outlook to a deeper one.
Retrenchments in manufacturing and trade-related sectors are likely to worsen as firms cut back on hiring amid rising uncertainties, they said.
Alvin Liew, an analyst from United Overseas Bank, said that the official forecast could be downgraded to a range of 0.5 per cent and 1.5 per cent in August, highlighting the possibility that the government’s 0.1 per cent year-on-year flash estimate for the second quarter could be revised into negative territory as well.
MTI’s forecast had put GDP growth at between 1.5 per cent and 2.5 per cent for the whole of 2019.
How economy may affect next election
Based on data put together by TODAY, the one time a General Election was called during a recession was in 2001, which was brought about by the 9/11 terror attacks in the United States.
The ruling People’s Action Party (PAP), which was led by then-Prime Minister Goh Chok Tong, called for an election two months after 9/11. Following the attacks in New York, Singapore experienced its worst recession since the nation’s independence that year.
The 2001 General Election occurred after a period of technical recession that lasted three straight quarters — from January to September.
The PAP went on to win comfortably with walkovers in 55 out of 84 seats, garnering 75.3 per cent of the vote, an increase from the 65 per cent in the 1997 general election.
In an interview with Bloomberg earlier in the week, Law and Home Affairs Minister K. Shanmugam said that one of the top concerns in the next General Election — which must be held by April 2021 — will be about the economy and trade upheavals.
"People are following the news on US and China very closely, and they know that we can be affected," he said.
"For the younger people, they're looking at 'Hey, this is a new environment, this is a new economic environment, how is our economy shaping up?'
“So, creating the value and creating the opportunities have been important, and who do they trust to continue to create (these)."
Healthcare and retirement adequacy, too, are important in Singapore's ageing society, he added.
What long-term plans are for trade
Drawing a distinction between Singapore’s current economic climate and the 1997 Asian financial crisis and the 2008 global financial crisis, Trade and Industry Minister Chan said that the previous crises involved “a sudden loss of confidence in global financial markets” as the trigger.
However, “we are now dealing with longer-term shifts in supply chains and production patterns”, he said. These will unlikely revert to the previous norms even if there is a respite from the short-term trade tensions among the major global economies.
In his Facebook post, Chan outlined how Singapore will meet the external challenges, noting that the country also faces competitive pressures from countries other than the US and China.
Focus on attracting high-quality investments for the long term
Not all production shifts and trade flows brought about by the ongoing trade war may flow into the country in the short term. “Companies looking for a stable political environment, pro-business ecosystem, skilled workforce, progressive regulations, superior connectivity and rule of law still see Singapore as an attractive destination,” Chan said, noting recent investments into Singapore by petrol giant ExxonMobil, chemical firm Linde, pharmaceutical company GlaxoSmithKline, consumer electronics firm Dyson and the two integrated resorts here.
Assist companies and workers to adjust to the new realities
Instead of artificially boosting demand, Chan said that Singapore will focus on its long-term fundamentals, “building real and new capabilities, expanding into new markets and acquiring new skills”.
To this end, the government will support businesses and workers in the transformation.
Finance Minister Heng said that the Future Economy Council will continue with its industry transformation plans and build stronger enterprise capabilities in businesses.
“We must continue to focus on the medium and long term, even as we tackle the short-term challenges posed by the current economic cycle and help those affected.”
What long-term plans are for jobs
In terms of manpower, Heng said that the government is working with employers and unions to prepare for all scenarios. In a Facebook post, Manpower Minister Josephine Teo outlined how Singapore intends to provide employment support for workers.
Noting that there are still around 60,000 unfilled vacancies today, Teo said that 30,000 are jobs for professionals, managers, executives and technicians in financial services, professional services and infocomms. Jobseekers can consider job openings they might have looked past previously, she wrote.
Growing new and better jobs
As the economy transforms and technology advances, new jobs can be created. In banking, tellers are now retrained as digital ambassadors, customer service officers and chatbot trainers, for example.
Tightening foreign workforce quota
Announced in Budget this year, the foreign workforce quota in the services sector will be tightened in phases, leading employers to seek to hire more Singaporeans. “Taking up these jobs may require training or adjustments in salary expectations,” Teo said.
Supporting career transition
The government has more than 100 Professional Conversion Programmes in more than 30 sectors to help workers transition from one career to another. A Career Trial programme has also been launched to help employers and jobseekers who are unsure, to give each other a chance, Teo said. ― TODAY