Will Singapore avoid a technical recession this year?

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Singapore Likely to Avoid Technical Recession, Though Risks Remain

Private-sector economists generally concur with the government's outlook that Singapore will likely avert a technical recession this year. However, they also acknowledge that the possibility cannot be entirely dismissed, citing a confluence of global and domestic economic factors. The economy recorded a year-on-year expansion of 4.4 per cent in the second quarter, but experienced a slight quarter-on-quarter contraction of 0.2 per cent during the same period, a metric that defines a technical recession if repeated for two consecutive quarters.
Factors Influencing Economic Outlook

Economists point to several key drivers that could help Singapore sidestep a technical recession. The anticipated improvement in China's economic growth, following the easing of Covid-related lockdowns, is expected to have a positive spillover effect on Singapore's growth outlook. Furthermore, the ongoing recovery in Singapore's services sector, particularly travel and consumer-related services, is seen as a significant counterbalance to potential weaknesses in externally oriented sectors. The resumption of international travel is also projected to benefit professional services sectors.
Manpower Constraints and Rising Costs Pose Challenges

Despite these positive indicators, several economists have voiced concerns regarding persistent manpower shortages and escalating costs, which could temper growth. The measure of "value-added per actual hour worked" eased in the second quarter, while unit labour costs saw a further increase. Although an expected increase in foreign labour supply as borders reopen may alleviate some pressure, the tight labour market remains a significant consideration for businesses and the overall economy.
Uneven Sectoral Growth and Global Headwinds

The economic landscape presents a picture of uneven growth across various sectors. While industries such as tourism and aviation are benefiting from the reopening, sectors like manufacturing are experiencing slowing momentum due to a global demand slowdown. This divergence, coupled with external pressures such as rising interest rates in the US and globally, China's economic slowdown, and a potential recession in Europe, could dampen exports and trade-related services, thereby increasing the risk of a technical recession.
Cautious Projections Amidst Uncertainty

While some economists project a return to positive quarter-on-quarter growth in the third quarter, the overall sentiment remains one of caution. Projections for the next quarter suggest modest growth, but the risk of a technical recession is considered to be a "50-50 call for now." Some analyses indicate that a significant slowdown in economic growth, potentially to around 2 per cent year-on-year, could trigger a technical recession. The dissipation of reopening tailwinds and persistent global economic headwinds contribute to this cautious outlook.

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Will Singapore avoid a technical recession this year?

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