Singapore’s economy contracted in the first quarter, raising the risk of a recession in the city state as global economic prospects weaken and top trading partner China struggles for a post-COVID takeoff.
Singapore, a major financial center, relies on trade flows to keep its economy going, although external demand has weakened on rising borrowing costs and still-strong inflationary pressures.
Gross domestic product rose 0.4 percent on-year in the first quarter of 2023, official data showed Thursday, beating the advanced estimate of 0.1 percent released last month.
However, on a seasonally adjusted quarterly basis, the economy contracted 0.4%, a reversal of 0.1% growth in the fourth quarter of 2022, leaving the prosperous city-state at risk of recession. technique in case of another contraction in the current quarter.
Maybank economist Chua Hak Bin said a technical recession, defined as two consecutive quarters of contractions, is possible if China’s reopening momentum does not materialize in the second quarter.
“So far, the return of tourists from China is more of a trickle than a flood,” he said.
However, the Ministry of Commerce said it does not expect a technical recession this year, but acknowledged that the outlook for external demand for the rest of the year had weakened.
Yong Yik Wei, chief economist at the Ministry of Commerce, said the government expects low quarterly growth in the first half of this year and a pick-up in momentum thereafter.
“But obviously, you know, given the downside risks and the weakening outlook, we can’t rule out the possibility that there will be a few quarters of negative qoq growth this year.”
On the other hand, the central bank said that its current monetary policy was adequate, but that it is keeping abreast of growth and inflation trends.
The Monetary Authority of Singapore left monetary policy levers unchanged last month, after tightening them five times in a row since October 2021, including two off-cycle moves last year in January and July.
The Ministry of Commerce is keeping its GDP growth forecast between 0.5 and 2.5 percent this year, with growth likely to be in the midpoint of that range.
Maybank’s Chua said he was surprised the growth forecast held up.
“We are less optimistic and see the economy stagnating rather than recovering in the coming quarters.”