Tough times ahead as economy slumps

SINGAPORE — The Singapore economy suffered its worst slump in four years in the third quarter, data released on Friday (Oct 14) showed, prompting economists to downgrade their growth forecasts and warn of job losses as the central bank signalled more tough times ahead.

Dragged down by both the manufacturing and services sectors, Singapore’s economy contracted by 4.1 per cent on a quarter-on-quarter seasonally adjusted annualised basis, advance estimates from the Ministry of Trade and Industry showed. 

It is the biggest decline since the third quarter of 2012, a reversal from the 0.2 per cent growth in the April-to-June period. Compared with the same period a year earlier, GDP rose 0.6 per cent in the third quarter, easing from the 2 per cent growth in the previous quarter. 

UOB economist Francis Tan said: “The negative effects of a slowdown in the external environment, as well as the spillovers from the weak manufacturing sector, had become more significant for Singapore’s services sector, as trade-related services sectors and financial services activities pulled back. Being the largest employer (with 72 per cent of the workforce), the prolonged slowdown in the services sector will imply even higher labour redundancies and unemployment rates as we start crystal-balling into 2017.”

Ms Selena Ling, head of treasury research & strategy, OCBC bank said: “The key drags were manufacturing, which was anticipated, but services momentum shrank for the third straight quarter. This is akin to the second growth engine running into difficulties for the Singapore economy.”

UOB downgraded its growth forecasts for the Republic this year to 1.4 per cent from 2.2 per cent, while OCBC cut its forecast to 1.3 per cent from 1.9 per cent. This is still within the Government forecast range of 1 to 2 per cent. Minister for Trade and Industry (Trade) Lim Hng Kiang had cautioned in Parliament earlier this week that the economy may contract in some quarters and growth will likely to be at the lower end of the official forecast range. The Government will update its growth forecast next month. 

After the data release, the Singapore dollar plunged to a seven-month low of S$1.3917 to the US dollar before recovering some of the losses to S$1.3875 late in the day, still a decline of 0.5 per cent.  Shares rose despite the bleak news, with the Straits Times Index up 9.76 points or 0.35 per cent to close at 2,815.24. 
“When data is lousy but equities are good, it probably shows that the market is assuming that the Government and central bank will come out to support the economy,” Mr Tan noted.

In its policy statement on Friday, the Monetary Authority of Singapore (MAS) warned that economic growth is not expected to pick up significantly next year, saying that the retail and real estate sectors will continue to face headwinds. Retail sales in Singapore fell 1.1 per cent in August compared with the same month in the previous year, with all sectors except motor vehicles in the red, showed data released on Friday by the Department of Statistics. Excluding motor vehicles, retail sales dipped 2.1 per cent from a year ago.

Despite the weak outlook, the central bank maintained its neutral policy stance in what economists said was a move to reserve firepower in case things got worse. But the economists said there is scope for the Government to roll out budgetary measures.

“There is budgetary headroom for further enhancements to the existing suite of fiscal pump priming and based on this week’s response in Parliament by Minister Lim to the question of whether a recession is imminent and what measures the Government is contemplating, there is also a willingness by policy makers to mobilize budgetary headroom if required. Moreover, we anticipate eagerly the proposals from the Committee for Future Economy,” said Mr Tan.

Friday’s advance estimates showed the manufacturing sector contracting by 1.1 per cent on a year-on-year basis in the third quarter, reversing from the 1.4 per cent expansion in the previous quarter. The sector was primarily weighed down by a decline in the output of the transport engineering, biomedical manufacturing and general manufacturing clusters. Quarter-on-quarter, the sector contracted by 17.4 per cent, after the 2.1 per cent growth in the preceding quarter.

The services sector shrank 0.1 per cent on a year-on-year basis in the third quarter, compared to the 1.2 per cent growth in the preceding quarter. Growth was weighed down mainly by the wholesale and retail trade sectors, MTI said. Quarter-on-quarter, the services sector shrank by 1.9 per cent, accelerating from the 0.9 per cent decline in the preceding quarter.

Meanwhile, growth in the construction sector slowed marginally to 2.5 per cent on a year-on-year basis in the third quarter from 2.6 per cent in the previous quarter. From the preceding quarter, the sector expanded by 0.5 per cent, moderating from the 1.1 per cent expansion previously.