Economists say S’pore unlikely to slip into technical recession despite 2Q contraction

“Travel- and consumer-related services will continue to see improvements, offsetting some weakness in the externally-oriented sectors,” she said.

Ms Selena Ling, OCBC chief economist, added that professional services sectors are also expected to benefit with the resumption of travel.

However, experts cautioned that such growth may be tempered by current manpower constraints.

Mr Alvin Liew, UOB senior economist, also expects quarter-on-quarter growth “to return to positive territory” in the current third quarter.

However, he also voiced concerns over the tight manpower market, on top of “the rising cost issues relating to both wage growth and operating costs of businesses”.

Referring to MTI’s report, he highlighted how the value-added per actual hour worked measure eased noticeably to 0.8 per cent year on year in the second quarter of this year, down from 2.3 per cent in the preceding quarter.

Meanwhile, the unit labor cost for the overall economy rose further to 9 per cent year on year from 7.7 per cent over the same period last year.

However, he said the expected increase in the supply of foreign labor as borders reopen will augment the existing labor pool, especially within Singapore’s labour-intensive industries.


CIMB bank economist Song Seng Wun similarly expects the inflow of manpower that may help to growth in sectors such as services and construction.

In the broader picture, he pointed to uneven growth across sectors in Singapore.

He highlighted industries that “benefit from the reopening” such as tourism and aviation, while simultaneously pointing to the “slowing momentum” of industries that are subjected to global demand slowdowns, such as manufacturing.

While he acknowledged that it would depend on how these industries balance each other out, Mr Song expects “a higher chance of another contraction rather than growth” for the next quarter.

He said that even if Singapore sees headline growth, inflation, which is expected to peak in the third quarter of the year, “may take the wind out of nominal growth”, resulting in a contraction in real terms.

Other economists, though expecting a slow positive growth for the rest of the year, are cautious about their outlook.

Ms Ling from OCBC, projects a 0.2 per cent growth next quarter on a seasonally adjusted quarter-on-quarter basis.

However, she said the risk of a potential technical recession “cannot be ruled out”, and the chances of avoiding one “probably close to a 50-50 call for now”.

She added that “may not take much to tip … (my) forecast into negative territory” if manufacturing momentum continues to moderate more than expected.

Maybank economists Chua Hak Bin and Lee Ju Ye, while expecting the economy to continue growing in the second half of the year albeit at a slower rate of 1.3 per cent, said that there is “some risk of a technical recession” if economic growth slows to about 2 per cent on a year-on-year basis.

“The boost from the reopening tailwinds will dissipate, while global headwinds including rising United States and global interest rates, China’s slowdown, and a probable Europe recession will dampen exports and trade-related services,” they added.


Leave a Comment

Your email address will not be published.