Despite being hailed as the world’s most powerful economy in 2019, Singapore is not immune to (outside) factors that pose challenges to its economic systems in years to come, especially since the system is designed to be dependent on international trade, which at present is experiencing a blackout due to the US’ trade protectionism against China.
And while nothing is certain at this point, it’s also good to take a look at the factors that could spell either a breakthrough or a breakdown for Singapore’s economy at this point in time.
Recession in Singapore by 2020 – A Possibility: Experts
The supposition of a recession is based on a report released by the Institute of Chartered Accountants in England and Wales (ICAEW) and financial forecasting firm Oxford Economics, as shared in a report by Today on Tuesday (June 4).
The key points of the report are as follows:
Singapore, an export-dependent country, is bound to be the most hurt among major Southeast Asian economies by the escalating trade war between the United States and China, as per economic forecasts.
- Shrinking economy
Singapore’s economy is projected to drop from its measly 3.1% growth rate in 2018, to 1.9% in 2019. The economy is then expected to bounce back slightly, going up by 2.2% in 2020.
Of note, a country goes into recession when there is a drop in GDP in two successive quarters.
- Poor performance in Q1
Singapore’s economy only grew by 1.2% during the first quarter of the year. This is the lowest growth rate in nearly 10 years, performing worse than the government’s flash estimate.
- Surrounding countries less affected
Singapore’s projected performance for 2019 was underwhelming, falling below the 4.8% growth forecast for the year across the region.
Out of the six Southeast Asian countries tracked by the Institute, Singapore will face the sharpest predicted slump among Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
The ICAEW’s 2019 forecast for Singapore comes within the Ministry of Trade and Industry’s prediction of 1.5 to 2.5 percent gross domestic product (GDP) growth announced in May 2019.
- Vital signs deteriorating
Given the situation of Singapore’s economy as of late, there is a risk that things could go south if external conditions further deteriorate, as supported by a number of reasons:
- Singapore’s open and trade-dependent economy has been dented by trade protectionism in U.S. and China. This has been compounded by weaker global trade. Exports were 2.1% lower in the first quarter of 2019 than in the same period in 2018, mainly due to a sharp fall in goods exports. To this, PM Lee Hsien Loong has called on to the US and China to resolve their differences and to “work together” as the two countries have increasingly turned toward technology, centering on Chinese tech giant Huawei.
- The outlook for exports remains downbeat, as the U.S. and China continue imposing tariffs. Both countries rank among Singapore’s largest trading partners.
- Electronics manufacturing sectors in Singapore are affected thus spilling over its negative effect on other sectors such as retail and services. Investment in machinery and equipment fell and firms have opted to reduce stocks.
- Singapore is affected by lower imports demand from China. China’s domestic economy has been generally slowing down since 2016, made worse by the trade war.
Again, the probability of a recession is not certain, especially since the country still has some strong fundamentals. For one, Singapore’s domestic demand, which includes household spending and the construction industry, has remained resilient and could offset the fall in trade. On-going public infrastructure projects such as the 21.5-km North-South Corridor by the Land Transport Authority are still making good progress. However, the growth of residential construction activities has slowed down, and the demand for durable goods such as motor vehicles has weakened.